ETF Trends
ETF Trends

For all the talk of weak economic data and slowing growth coming out of China, the most recent batch of data points from the world’s second-largest economy were not that bad. Those included an estimate-beating 9.7% increase in July industrial production and 5.1% export growth.

More import for commodities bulls was import growth of 10.9% last month. China is the world’s largest consumer of an array of commodities, including copper. Recent perception that Chinese demand for the red metal was waning plagued commodities funds such as the iPath DJ-UBS Copper TR Sub-Index ETN (NYSEArca: JJC) as well as emerging markets ETFs that track major copper-producing nations such as Chile, Colombia and Peru. [More Downside Could Await Chile ETF]

JJC and other copper-related funds came under pressure as problems centered around China’s lending rates and slowing economic growth could weaken copper demand. The copper ETN has recently shaken off the China concerns to trade higher and is now resting at a critical technical juncture that could determine the ETN’s near-term fate. [China Weakness Weighs on Copper ETF]

JJC closed unchanged Monday, but the ETN is still up 3.6% in the past week and 5.1% in the past month. “After nearly six months of declines following what looked to be a fall off a cliff on the charts, copper found stability in July. Last week, it jumped through its trendline and 50-day moving average as well as the top of a multiweek-trading range. Thanks to its clarity, it was the type of chart action that makes technical analysts happy,” reports Michael Kahn for Barron’s.

A move above $41 could give JJC the fuel to run to its 200-day moving average, which it currently resides 4.7% below. JJC has not traded above that important technical indicator since February and has not been close to reclaiming it since March.

There are still risks surrounding the long copper thesis. China has been stockpiling copper for years in light of strong year-over-year economic growth. As of April, the stock levels were at 182,000 tonnes, or 54% above the 5-year historic average. Additionally, some critics view the country’s economic data as unreliable.

Still, copper futures could get a lift from short-covering, which would spark JJC higher. Professional traders have recently been reducing their net short exposure to copper, but it remains one of the more heavily shorted metals, indicating that any unexpected rise in the spot market could touch off a flurry of short-covering.

iPath DJ-UBS Copper TR Sub-Index ETN

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.