Copper Is Ready To Explode!

| October 9, 2013 | 0 Comments

copperCopper bulls take note.   Recent Chinese economic data supports the idea that the red metal is underpriced. 

Let me explain…

As you may have heard, China’s September service purchasing manager’s index (PMI) recently came in at 55.4.  That’s a very bullish report since a reading of 50 or higher represents an overall increase in Chinese service activity.

What’s that mean in layman’s terms?

The Chinese economy is picking up steam…   

And since China is the world’s largest consumer of copper, there’s a very good chance they’ll go on a restocking binge soon.  And trust me, when China goes into buying mode… watch out.  Prices have a tendency to rise quickly when the Chinese Government dips its toe in the market.

Speaking of prices, take a look at this copper chart…


As you can see, trading in the widely used industrial metal has been a bit dull in recent weeks with the price gyrating around $3.30 a pound.

But notice the red lines…

They signify the recent tops and bottoms of the copper market since early August.  The fact that these two red lines are coming together to a common point is significant.

What’s it mean?

In technical analysis circles, this is called a consolidation pattern.  These highly profitable patterns occur when there’s extreme indecision amongst investors. 

But the exciting part is, once investors do start leaning in a particular direction, bearish or bullish, the price reacts violently.  As a result, consolidation patterns present a very lucrative trading opportunity.

So why are investors so indecisive lately?

Not only is the US Government shutdown making it impossible to get important economic data, but there’s still lingering doubts about Ben Bernanke’s tapering plans.

What’s more, the upcoming US debt ceiling deadline has investors taking a wait and see attitude with all commodities.  As you’ve likely heard, on October 17th the US Government runs out of money.  That is, unless Washington politicians agree to raise the amount the US is allowed to borrow.

But here’s the deal…

They will come to a resolution- they have no other choice. 

The consequences of failing to raise the debt limit would be catastrophic for the US economy.  Interest rates would soar uncontrollably as investors suddenly doubt if the US Government is capable of paying its bills.

But like I said, they will come to an agreement.  And once they do, copper will likely break higher out of the red consolidation pattern.

Now let’s be clear…

Consolidation patterns like the one you see above offer no clue to future direction.  All they tell you is that a big market move is coming.  But since Chinese economic data is coming in at increasingly bullish levels, I’m leaning on the bullish side of the copper market.

Until Next Time,

Justin Bennett

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Category: Copper

About the Author ()

Justin Bennett is the editor of Commodity ETF Alert, an investment advisory focused on profiting from the ebb and flow of important commodities via ETFs. The commodity veteran and options specialist is also a regular contributor to the Dynamic Wealth Report. Every week, Justin shares his thoughts with our readers on a variety of commodity-related topics. Justin is also a frequent contributor to Commodity Trading Research’s free daily e-letter. And he’s the editor of another highly successful and popular investment advisory, the Options Profit Pipeline.