Commodity ETF Alert July 2014 Issue

 

Commodity Outlook:  Copper

Believe it or not, things are suddenly looking up for China.  After a year of weak data readings and plenty of worrisome prognostications, the Chinese economy is rebounding- and strongly.

Let me explain…

Last week’s HSBC/Markit Chinese manufacturing PMI jumped to 50.7 in June.  That’s an enormous improvement over the 49.4 reading from May.

What’s it mean?

China’s manufacturing sector is expanding again. Remember, a reading above 50 signifies expansion while below 50 signals contraction.  Just as recently as March 2014, the HSBC PMI sat at 48.

Clearly, there’s a large rebound occurring in China’s manufacturing sector.

And that’s not all…

The National Bureau of Statistics of China released their country’s export/import balance last night.  As you may know, this highly important reading reveals how much merchandise China is trading with global partners.

For the month of June, exports grew at 7.2% year-over-year pace.  That’s above May’s reading of 7.0% and dramatically higher than April’s paltry 0.9% reading.

What’s more, imports grew at a 5.5% pace in June.  As recently as April, China’s export reading was a very worrisome -11.3%.

Without a doubt, import/export activity is picking up dramatically!

What’s all this data mean for commodity investors like us?

With the Chinese economy picking up steam, there will be growing demand for basic materials like copper.  As you’re likely aware, copper is an essential construction metal.

And since China consumes around 40% of global copper supplies each year, strengthening economic activity from the country can do wildly bullish things for the copper market.

In fact, over the past month, the red metal has gained 7%.

And with most economists seeing continued economic strengthening in China through the end of the year, copper’s gains are likely just getting started.

Now listen closely…

Even with the recent rally, we can pick up the metal for $3.26 a pound.  That’s cheap relative to the $4.50 price point it traded at in 2011.

Can copper regain those yearly highs?

It’s still too early to know just how far copper can rally- we’ll need more economic information from China.  But there’s a very good chance the metal can achieve the $3.75 level or higher in coming months.

So let’s not delay in buying the iPath DJ-UBS Copper (JJC) at any price under $40.17 a share.  A rally in copper will send JJC higher.

Let’s look at a chart…

Technically Speaking:

As you can see, JJC is breaking above (red circle) a long-term resistance line (green line).  Given this breakout, along with the deluge of promising Chinese economic data, there are very good odds of JJC trading to the $45.00 area or higher in coming months.

WHAT TO DO NOW:

iPath DJ-UBS Copper (JJC) is trading at $39.80
Buy JJC up to $40.17 per share
Our profit target is $45.00 or more

 

Category: Commodity Trading