Copper Bounce – More To Come?
Ask anyone who watches the copper market religiously, and they’ll likely tell you the same thing…
The past four months of trading has been akin to watching paint dry.
The red metal has been stuck in a downright boring trading channel between $3.15 and $3.35 a pound since mid-August.
Take a look…
As you can see, copper is stuck between two strong trend lines (blue lines). And unless you’re playing the short-term swings within this channel, this market has become a lesson in patience.
But that may change soon…
Chinese economic data may finally be getting strong enough to push copper up and away from the 52-week low at $3.05 (red line). November exports from the country came in at a 12.7% year-over-year increase. That’s much stronger than economists believed.
And that’s not all…
Chinese auto sales are exploding. The China Association of Automobile Manufacturers reported 2.04 million vehicles were sold in November. That’s a jump of 14.1% year-over- year… a record high.
What does all this information mean in plain English?
The Chinese economy is doing much better than many economists realize…
And when the Chinese economy is doing well, copper demand rises. As you may know, China is the world’s largest consumer of the red metal. So when their economy gets on a roll, the country scoops up supplies from global copper warehouses.
As a matter of fact, London Metal Exchange (LME) copper futures are jumping into backwardation due to tight supplies.
In case you’re unaware, when near term supplies of a commodity are plentiful, the futures market trades in contango. In other words, cash futures trade at a discount to three month pricing. But when supplies get tight, the cash market moves into backwardation and trades at a premium.
Backwardation is a clear sign the price of copper needs to move higher…
As long-time readers are fully aware, I’ve been bullish on copper for months now. Investors need to start waking up to the fact that China, and global growth, is getting stronger. And that means copper is priced too low.
How can you capitalize on a rise in the red metal?
The easiest way to play it is through the iPath DJ-UBS Copper ETN (JJC). When copper rises, so does JJC.
Until Next Time,
Justin Bennett
Category: Commodities
