The iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC), an exchange traded note that tracks copper price movements, is higher by nearly 6% over the past month. While the rally in previously downtrodden copper is not convincing all traders the bullish trend will last, some technical analysts believe “Dr. Copper” is once again worth listening to.
While production cuts may support prices now, the bounce in the copper market may be short lived as fundamental factors remain weak.
The U.S. dollar is expected to appreciate against foreign currencies as the Federal Reserve embarks on monetary tightening while international central banks are largely enacting looser policies to stimulate growth. As the U.S. dollar strengthens, the USD-denominated commodities will likely weaken on lower overseas demand. [Commodity ETFs Take Beating from Fed]
“Since falling sharply in November to seven-year lows, the metal stabilized and now appears to be completing an inverted or upside-down head-and-shoulders pattern,” reports Michael Kahn for Barron’s. “This common pattern suggests a transition phase from bear to bull as declines weaken and bounces strengthen. Technical momentum indicators confirm this by setting higher lows even as prices set lower lows. In charting lingo, that is called a bullish divergence. And price typically changes direction to follow the indicator.”
While production cuts may support prices now, the bounce in the copper market may be short lived as fundamental factors remain weak.
“The low price environment has triggered some plans to cut back production, so this is short term support for copper prices,” analyst Chunlan Li of CRU told Reuters. “For next year, we think the price could touch lower because the macro environment is not good and the USD is strengthening. Demand is picking up a little bit but it’s not very strong … meanwhile miners are cutting costs which is cutting price support.”
Another beneficiary of rising copper prices is the iShares MSCI Chile Capped ETF (NYSEArca: ECH). ECH, the lone ETF dedicated to tracking equities in the world’s largest copper-producing country. Although Chile is viewed by some market observers as the most advanced and open South American economy and it is undeniably home to Latin America’s highest sovereign credit rating (AA-), there is also no denying the country’s dependence on copper exports as a driver of government revenue. [A Chilly View on the Chile ETF]
iPath Dow Jones-UBS Copper Subindex Total Return ETN
