The set-up: On Aug. 11, I wrote about “Dr. Copper,” the commodity that’s such an accurate leading indicator, it may as well have a Ph.D. in economics. The theory goes that if demand for copper is increasing, the economy must be strengthening, because the metal is important in so many industries.
What the chart shows: Copper hit a high in February 2011, then trended down until January 2016. By late July, the commodity had broken out of its five-year slump and over its 200-period moving average.
The results: Of the four names I mentioned that I did not hold, Freeport McMoRan (FCX) is up 11 percent since that story ran. Rio Tinto PLC (RIO) and Southern Copper Corp. (SCCO) are both up 8 percent, and Vale SA (VALE) rose 10 percent.
How I played it: Earlier this summer, I went long: $7.32CDN July 10 for 3,000 shares of Hudbay Minerals Inc. (HBM), and $10.27CDN June 21 for 3,000 shares of First Quantum Minerals Ltd. (FM.TO). Last week, having surpassed my profit targets, I sold HBM for $11.04CDN and FM for $14.73CDN; Hudbay rose 25 percent in seven weeks, First Quantum gained 18 percent since that Aug. 11 article.
The outlook: I’m see candle patterns that indicate a coming pullback – or at least a short-term pause — in copper stocks, so I’m going to sit back, let those patterns play out and look for a reload of those stocks. The long-term outlook for copper remains bright; look at how the iShares MSCI Emerging Markets ETF (EEM) — which includes a lot of base metals — has rallied off its January low to gain 33 percent this year. On a weekly chart, the iPath Bloomberg Copper Subindex Total Return ETN (JJC) has come up and touched a resistance area; the Baltic Dry Index also is sitting at its highs for 2017.
Economies in the world are moving. That’s why copper’s moving, along with producers of other base metals. Thanks to copper, I had one of my biggest months ever; I think it is going to help me have some more good months ahead, so it’s staying on my watch list.
Petra Hess runs PetraPicks.com. She is a technical swing trader and long-term investor in domestic and Canadian stocks and ETFs. At the time this article was published on RagingBull.com, she had no shares or open orders in copper stocks on any of the U.S. exchanges, and sold her positions as described above in Hudbay Minerals Inc. (HBM.TO) and First Quantum Minerals Ltd. (FM.TO).