Time to Buy Copper....Again?

by Brad Zigler

Pretty much everybody knows that copper was a big beneficiary of our dearly departed housing boom. New home subdivisions were a maw that devoured tons of the red metal. As the credit markets unwound late last year, copper futures dipped from the $3.80-per-pound level to $2.87.

Copper traders didn't have to go to ground very long. By late February, copper futures took out last year's high and now have been bumping up against resistance at the $4 level.

This begets the obvious question: Can copper break through to the upside and move to higher levels?

Forget about fundamentals for a moment. Just from a technical perspective, copper's a pretty enticing proposition.

The COMEX weekly chart shows an ascending triangle, a signal of weakening seller interest in defending the $4 level. Option traders should recognize this as a good opportunity for long straddles or strangles.

COMEX Weekly Copper

In early March, the first test of the $4 came as small speculators ­- the bellwethers of investment demand - reversed course and finally gave themselves up to their bullish muses. Some skirmishes with bears resumed in the ensuing weeks, with short sellers getting the best of things by late March. Since then, though, bearish sentiment has been eroding at a substantial rate. Commercial traders - a much less volatile force in the copper market - have also lightened their net short exposure since late March.

If there's upside to be had, what's the best way to get it? There's futures, of course. But if you can't take that route, there's the iPath DJ-AIG Copper Total Return exchange-traded note (NYSE Arca: JJC) that'll bestow unalloyed copper exposure, much like the futures it tracks.

Comments

[JPTAO]

What about the massive global infrastructure buildup over the last few years? Don't you think that had something to do with the run-up in copper prices?

[mlyn]

We need to be mindful of the rest of the developing nations' needing commodities as well. Copper may be a bigger play than gold, not to put down gold by any means. With sovereign wealth funds flushed with US dollars, watch for foreign investment of mining companies.

[AmesTiedeman]

Copper may look cheap here, but I expect a pullback in all commodities about now.

[mongoose]

I agree that sideways to lower is in order for the metals and aig's as well but stay tuned for the turn.

[williamtaylor]

Will not copper use expand so much in the developing world that it will be in short supply for the next 20 years. Don't hybrid cars require copper wound electric motors?

[paultaut]

the chart shown shows the possibility that copper could move down to 3.60....just draw the lines of the Triangle...copper supplies worldwide are at 3 1/2 days...

my upside target is north of $5.00...

While oil will continue to Fluctuate, the trend is and will continue to go up...while Opec can not stop the uptrend, it certainly will prevent a downtrend...there is no latitude...no one to increase output by the 3-4 million a day required to meet current demand....worldwide demand is around 82 mil.? and is being met by including Oil Equivalents into the mix.

The Saudi's alone can create a oil spike up to $200 in days just by cutting their output by 40%...Opec can accompish the same thing by reducing output by less than 15%...