Printer Friendly

eMail Article

April 06, 2009

Copper: A Long Term Opportunity in the Making
by Sol Palha

"Men never plan to be failures; they simply fail to plan to be successful." ~ William A. Ward

While the majority were panicking and turning more bearish with the passage of each day, we noted that copper was giving of an early warning signal of impending change.

It is said that the economy usually mimics the copper markets and upon examining the copper charts, it appears that the economy and copper are trending in the same direction. Copper appears now to be closer to a bottom than a top and hence from this, we can infer that the markets are also close to putting in some sort of bottom, if one takes a long term perspective. Copper has a tendency of putting in a bottom well in advance of the markets and the economy, and it provides an early warning signal of a potential change in market direction.

During the last strong correction, which lasted from 2000 until early 2003, copper put in a bottom towards the end of 2002, well in advance of the markets and the general economy. Thus a change in direction here will provide the first signs of a turn around. If the Dow trades down to the 7200 ranges and or puts in a new 52 week low, while copper starts to trend higher, it will be a very strong long term bullish sign. Market Update Dec 23, 2008.

After trading as low as 120, copper has mounted a rather strong come back in a matter of days. After breaking below the very important support zone of 140.50-142.00, it was able to remarkably trade above it with ease. Former strong support zones normally turn into very strong resistance points; its ability to break past it with such ease suggests that copper has or is very close to putting in a long term bottom. Copper is one of the first markets to recover and thus a recovery here would be another positive sign for the equity markets. Market update Jan 6, 2009.

It is now giving the first signs of a long term bottom formation, even though in the short term there is a possibility it could momentarily spike down to the 105-110 ranges. From a long term perspective, the current pattern is indicative of a long term bottom, and traders would be wise to start looking into the possibility of taking small bites in some of the key players in this sector. If, for some reason copper trades down to the 110 ranges, traders should view this as a long term screaming buy. A close above 160 would significantly diminish the chances of copper trading down to the 110 ranges. Published on the 10th of January 2009

The channel formation has moved from the 120-150 ranges to the 140-160 ranges and even though copper has not yet managed to trade above 150 for 12 days in a row, the fact that the channel formation is moving higher is a bullish sign. As a result of the strength in the channel formation copper now would need to trade above 150 for only 7-9 days, to indicate that the next target is 180. Global Pulse March 2, 2009

Copper traded past 150 for 9 days in a row and in the process hit its first upside target of 180 before pulling back. The next objective for copper would be to trade past 180 for 3-5 days in a row and in doing so set up a pattern that would trigger a move up to the 220-240 ranges before a stronger correction takes hold.

The above chart clearly indicates that copper is going to run into rather strong resistance at or around 250; it will take several attempts before copper can break past this zone of resistance, but once it breaks past this zone there is virtually no resistance until about 300.

Copper continues to trade well off its lows and a break past 180 will be a very strong confirmation that the Dow could rally for another 2 months before correcting again. Market update March 10, 2009

As copper is an early predictor of stock market and economic strength, continual strength in the copper markets will indicate that the markets have more upside potential. Copper did trade and close above 180 so the 1st sign of additional upside has been given. The higher copper trades, the stronger the overall market becomes and if Copper can trade to the 220-240 ranges then there is a good chance that the Dow could trade past 9000 before the next correction begins.

The 3 year chart also indicates and further confirms that the 250 price point level is going to provide some rather stiff resistance down the line. On the short term time frames copper is expected to rally and test it's main down trend line; on both the 1 year and 3 year charts this equates to a price that falls in the 225-250 ranges. Copper appears to have put in a multi month bottom and is on course to eventually take out its old highs and put in a series of new multi decade highs; if by some miracle its recent lows are tested, traders should load the lorry up on copper. Copper stocks have already moved up very nicely and if copper hits its suggested targets, most stocks should easily experience an additional 50% plus in gains.

Let's take a closer look at one of the main players in copper, FCX.

Fundamentals

Through its subsidiary, Phelps Dodge, it is a copper, Gold, and Molybdenum company. It also has a very nice global footprint; it has mines in Indonesia, North America, South America and in Africa.

As of Dec 31, 2008, recoverable and proven reserves totalled 102 billion pounds of copper, 2.48 billion pounds of Molybdenum, 266 million ounces of Silver, 0.7 billion ounces of Cobalt and 40 million ounces of Gold.

Indonesia

Its Grasberg minerals district in Indonesia contains the single largest recoverable copper and gold reserve of any mine in the world.

North America

It has 5 copper mines, Morenci, Sierrita, Bagdad and Safford in Arizona, and Tyrone in New Mexico. The chino mine was placed on care and maintenance in 2008 due to low copper prices, but will most likely be fully operational in the not too distant future due to rising copper prices. It owns two Molybdendum mines in Colorado, the Henderson Molybdenum mine and the Climax molybdenum mine.

Africa

It has a 57.5% interest in the Tenke Fungurme copper and Cobalt concessions in the Katanga province of the Democratic republic of Congo.

South America

It has 4 operating copper mines, Candekaria, El Abra and Ojos del Salado which are located in Chile and Cerro Verde in Peru.

Europe

In Spain through Atlantic copper and smelting a fully owned subsidiary it smelts and refines copper. A portion of the copper from its Indonesian and South American mines are sold to Atlantic copper.

Molybdenum

High grade molybdenum is produced at the Henderson underground mine in Colorado; additional molybdenum is produced as a byproduct from its North and South American copper mines.

Additional facts

It is the 2nd largest producer of copper in the world.

It is the largest producer of Molybdenum

It owns the single largest Gold and Copper mine in the world.

It has $2.18 per share in cash or put in another way a total of 872 million dollars and thus is cash rich, unlike many of its peers in the mining sector.

Technical analysis

FCX has already generated several buy signals on the hourly and daily charts in addition to the several positive divergence signals it has flashed over the course of the last 4 weeks. If it can now trade past 42 for 5-7 days in a row it will have a very good chance of testing the 56-60 ranges before pulling back. The 60-64 ranges present a very strong zone of resistance, and it will probably take several attempts before FCX can break through, but once it achieves a weekly close above 64, it should be rather smooth sailing to the 82-84 ranges.

FCX broke through its channel formation (18-32) after failing several times; this of its own is a very bullish development, but when it's coupled with the above factors the case for FCX becomes eve more bullish. The main down trend line in the above 3 year chart falls roughly at 42 and serves to confirm the pattern the 1 year chart is projecting. It also clearly indicates that the 64 price point level is going to present a zone of strong resistance and that a weekly close above this mark could result in a move as high as 96.

Conclusion

Copper definitely appears to have put in multi month bottom and is now on its way to test the 225 ranges and possibly higher. If by some miracle it should trade down to the 140 ranges again, long term traders should look at it as an early Christmas gift and load the truck up. There are many good plays in the copper sector, some of the small chaps will obviously lock in higher gains on a percentage basis, but FCX is a good play for those seeking a blue chip stock that is also a Gold and Silver producer.

Taking a long term perspective copper is still a bargain; a day will come when its current all time high will look cheap, so one can imagine how the majority will feel in the years to come when instead of buying aggressively, they sat mopping around waiting for the experts to guide them.

For the 1st time ever we are offering our readers a trial of our Market update service at a significant discount; we have never ever offered such a special before. For more info, please click on the following link. Recession Special

"Success is a journey not a destination. The doing is usually more important than the outcome. Not everyone can be Number 1." ~ Arthur Ashe 1943-1993, African-American Tennis Player

Sol Palha
TacticalInvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

The information contained herein is deemed reliable but no guarantee is made about its completeness or accuracy. The reader accepts this information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial advisor & is not acting as such in this publication. Investors are urged to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

Copyright © 2004-2009 Sol Palha, All rights reserved.

Image rendition and html coding Copyright © 2000-2009 SafeHaven.com

« Opinions expressed at SafeHaven are those of the individual authors and do not necessarily represent the opinion of SafeHaven or its management. Articles are available via RSS/XML. Please visit RSSHelp for instructions. »