The iPath Bloomberg Copper Subindex Total Return ETN (NYSEArca: JJC) is up 8% year-to-date. While that sounds impressive, the benchmark copper exchange traded note (ETN) likely needs to breakout to the upside and do so soon, or risk a potentially large decline.
Copper prices are benefiting as investors anticipate greater demand out of China and increased infrastructure projects under President Donald Trump. Some professional traders are reacting by increasing bullish bets on the red metal.
Industrial metals like copper, nickel, iron and steel have all rebounded in recent months as traders bet on improving global economic conditions would bolster demand for the base metals after prices hit multi-year lows.
“On its 6-month chart we can see how the sharp rally in copper last October and November has been followed by a largely unsuccessful attempt to push higher, and the pattern that has formed now looks like a bearish Rising Wedge, accompanied by dwindling upside momentum which is increasing downside risk,” according to ETF Daily News.
Trump’s audacious infrastructure plan, which calls for spending of $1 trillion, has somewhat fallen out of the spotlight amid the administration’s other efforts in recent days, but that plan is widely seen as a catalyst for industrial metals, including copper.
According to Trump’s book, “Crippled America: How to Make America Great Again,” he has called for a “trillion-dollar rebuilding program” that will be “one of the biggest projects this country has ever undertaken.”
Other industrial metals started rising before copper. Supporting the recent gains in base metal prices, markets saw improving data from China, the world’s largest consumer of industrial metals. However, some are beginning to doubt the sustainability of the metal market, pointing to signs of potential weakness in Chinese growth ahead.
Still, copper’s technicals are concerning. At least for the moment.
“The long-term, 10-year chart also gives rise to concern, for on it we can see that not only has the rally brought copper to the upper boundary of its major downtrend channel, but it has also brought it up into a zone of quite heavy resistance, so it is not hard to understand why it is having trouble making any further progress, and is increasingly vulnerable to turning lower again,” adds ETF Daily News.
For more information on Copper ETFs, visit our Copper category.