The iPath Dow Jones-UBS Copper Subindex Total Return ETN (NYSEArca: JJC), an exchange traded note that tracks copper price movements, is down more than 4% year-to-date, a laggard showing relative to other commodities exchange traded products.
In what could prove to be a cautionary tale, JJC’s laggard status could morph into an all out decline as copper prices approach a critical technical juncture. While production cuts may support prices now, the bounce in the copper market may be short lived as fundamental factors remain weak.
Related: Strengthening Dollar Plaguing Copper ETN
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.
[related_stories]Many industrial metals and miners rallied on the belief that China would support growth through stimulus measures, augmenting demand for metals while enticing investors to jump back in. Moreover, the depreciating U.S. dollar made USD-denominated resources cheaper for foreign buyers. The ongoing global low-yield environment also pushed investors toward more attractive assets, like commodities.
“Currently Doc Copper finds itself in what could be a very important price point, that could say a good deal about the direction of the macro picture, around the world. Copper has spent 98% of the past 13-years inside of a rising channel,” according to Chris Kimble of Kimble Charting Solutions. “Copper double bottomed in 1999 and 2001 and then started moving higher for years to come. Copper double topped in 2011 and has been moving steadily lower for the past 5-years.”
Related: Industrial Metals ETFs are Turning
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.
“Copper is testing 13-year rising support and the 61% retracement level of the 2001 lows and 2011 highs at (1) above. From a macro point of view, the Power of the Pattern feels its very important that Doc Copper holds at dual support,” according to Kimble. “The trend in Copper is lower and if support would happen to give way, selling pressure in this leading indicator could ramp up.”
iPath Dow Jones-UBS Copper Subindex Total Return ETN
