Copper Update - Plus Everything Else

Copper, which broke down through key support yesterday has closed below $2.90 per pound and is behaving as I hoped.

I also thought I'd update some of the calls and observations I've posted here over the last few weeks.

The dollar index, the set up which I was most excited on Tuesday about has stalled over the last few days. But the setup is still valid and yet to be disproved.

Silver sold off hard last Friday and continued down on Monday. Has since been a small consolidation zone, but looks like it could continue down.

Gold is still not showing any clear trend at the moment, but if the other metals continue down, it could follow suit. This is counter intuitive to the dollar downage... so we'll see.

Cotton which broke out of a rough basing pattern last Friday on very low IV, is continuing to look bullish. Not a parabolic trend, but very workmanlike.

Orange Juice - Rumours of OJ's demise have been greatly exaggerated. I was a tad enthusiastic in calling a top there... buuuuttt at least it hasn't bolted higher and humiliated me.

Cocoa is still looking bullish, but some profit taking eveident.

Crude. You knew I meant NEXT Christmas, right?

Coffee. Made enough to pay off my tab at the local Cafe'.

This will be my last post before Christmas I think, so HAVE A GOOD ONE!

Copper Cropper

Regular readers of this blog will notice that I have given a lot of attention to copper futures over the last 6 weeks or so. The reason is that I think it could be a good leading indicator for the health of the US/western economy - China story interplay. The precious metals have currency/inflation implications affecting price, and equities..... well in my opinion that's fantasy land affected more by spin than economic factors.

Copper is not greatly affected by these factors; BubbleVision doesn't talk about it much, if at all, so it is a pure supply and demand play... give or take the odd hedge fund trade.

For quite a few months I've held the view, and I'm not alone in this, that the copper story is all over for now, that we'll see lower prices going forward.

The thing is, since the low at around $2.97 per/lb printed during the retracement from the high of the year, copper futures have been doggedly supported at this, and points north.

On Dec 7, I posted up a chart of where I thought copper *might* go over the short term and this seems to be going according to script... at the moment anyway. March Copper futures today have broken below that $2.97ish support.

Now, it's not a convincing break by any stretch of the imagination and it could even finish the day back above support. I also fully expect buyers to show up at some stage over the next few days anyway, so this "scenario" will still need some time to play out and either confirm itself, or for buyers to come in and support it for a while longer.

In any case, this really adds to the hypothesis I'm working on and I think this, as a leading indicator, is looking just that bit more bearish for the overall western economy.

Just my opinion folks.

Melt Your Pennies For Profit

Apparently, the copper contained in US pennies and nickles is now worth more than the face value of the coin.

So it could be a profitable enterprise to cash in your life savings into pennies, melt it down and flog off the metal to scrap merchants in China.

Yeah good idea!! Except it could land you in the slammer.

Effective today, the U.S. Mint has implemented an interim rule that makes it illegal to melt nickels and pennies, or to export them in mass quantities.

With the soaring price of copper, a melted-down penny or nickel is now worth more than it would be in its regular state at face value.

Officials at the Mint say in recent months they have received numerous inquiries into whether or not it is illegal to melt coins.

"We are taking this action because the Nation needs its coinage for commerce," said U.S. Mint Director Edmund Moy in a statement.

The best ideas are always illegal :(

Meanwhile on the futures, Near month copper is hanging doggedly onto the ~$3 mark. Astonishingly, my pictoral hypothesis from the 7th Dec is playing out pretty close to the mark and now only need a break of support, to attain my copper guru stripes.

Copper To Come A Cropper

Or so says ABN Amro Holding NV metals analyst Nick Moore in London. Apparently the fundamentals of base metals are deteriorating as the economy looks to be slowing down and more supply comes on-line.

Read all about it in this Bloomberg Article

However, in the same article analysts are bullish on Gold and Soybeans:

SNIP - Next year's commodity winners may include soybeans, which are poised to jump to a 15-year high as U.S. farmers, the world's biggest producers of the oilseed, devote more land to corn.

Gold may extend its rally as the dollar weakens and slowing economic growth prompts investors to seek a haven for their cash. JPMorgan Chase & Co. increased its ``long-term'' price forecast for gold by 9.5 percent last week on expectations for ``robust'' demand.

``Gold's going to be the phenomenon of 2007,'' said Michael Metz, chief investment strategist at New York-based Oppenheimer & Co., which has about $10 billion in assets. ``If I had to choose one commodity, I'd stick with gold.''

Folks really are bullish on the gold story and the gold bugs really do put up a convincing case. It's almost so universal I'm tempted to invoke contrarian theory and fade it. Buuuuuut gold can run up awful fast if something happens... options don't look that cheap to me either so I'll be holding off from anything rash for now.

Gold Makes It to Wallstrip

If you've never watched Wallstrip, you should get over there right now and subscribe... entertaining, educational, funny... Howard, Lindsay et al are doing a great job. I've never mentioned it here because, well, it's mainly about stocks, and this is a commodities blog. So it was really cool to see todays episode all about the yellow metal:



It's reminded me that I've been remiss in mentioning gold, apart from the odd quip here and there. Why? I suppose from a trend trading standpoint I am a bit underwhelmed with the pattern at the moment. I don't see anything that would have me plonking on the futures with a trend trade and I don't like the IV setup at the moment for any short gamma option trades.

It doesn't mean I've ignored it, Oh no, it still has useful little swings for taking short term trades, so yes have been jousting away at it. I note Howard has got in at a good spot though and Bill Rempel also has a well thought out article on his blog today and faces off the bulls.

Long term... hey, I don't know I'm just a trader. Both sides have strong arguments and I follow along pretending to understand all the concepts, but as a private trader I'm primarily a hitch-hiker, I'm just draw my lines and try to catch a ride whichever way it's going. At the moment I have no idea which way, so it will be tilting at windmills for me for the moment.

When They Sell Silver...

...they really don't mess around. As it stands at this moment, silver is down >7%.

That is a big move in one day and represents a few dollars under $5,000 PER CONTRACT. Longs will nevertheless be happy with their gains since the October low, but it's still a lot of money to give back. (presuming not liquidating)

Gold has also put in a bearish day, being down a point and three quarters.

It could have a lot to do with the US dollar which has been staging a rather impressive recovery over the last few days. No sign of the dollar doom the bona-fide gold bugs have been getting excited about.

My view on the dollar; if I'm bearish, I'm bearish on all the western currencies, so nil effect in reality. Just the normal turns and round-abouts common in any instrument over time.

Kopper Kwicky

Copper is once again testing key support at the close of trading today. I am more convinced it will break support sometime soon rather than another bull leg up.

Chart

Analysts Bearish on Base Metals

From TickerSense:

2007 Expected Commodities Price Changes

The table below highlights the consensus opinion on where commodities prices will go in 2007. The estimates are from numerous analysts polled by Bloomberg. The expected percent change for each commodity is calculated by the difference in the year-end 2007 consensus and the current price. Interestingly, the only three commodities that are expected to rise in 2007 are the three tracked mostly by the mainstream media -- oil, natural gas, and gold. All other commodities are expected to decline, with lead expected to fall the most.

About Copper

Did You Know?

Copper is man's oldest metal, dating back more than 10,000 years. A copper pendant discovered in what is now northern Iraq goes back to about 8700 B.C.

The H.M.S. Beagle, used by Charles Darwin for his historic voyages around the world, was built in 1825 with copper skins below the water line. The copper sheathing extended hull life and protected against barnacles and other kinds of biofouling. Today most seagoing vessels use a copper-containing paint for hull protection.

Paul Revere, of Revolutionary War fame, produced the copper hull sheathing, bronze cannon, spikes and pumps for the U.S.S. Constitution, known as "Old Ironsides." Revere was one of the earliest American coppersmiths.

The boilers on Robert Fulton's steamboats were made from copper.

One of the famous Dead Sea Scrolls found in Israel is made of copper instead of more fragile animal skins. The scroll contains no biblical passages or religious writings - only clues to a still undiscovered treasure. ===>>MORE<<===

So where are we going with copper?

Well after that tremendous run up that climaxed in May of this year, copper has been in a retracement/consolidation/triangle with what appears to be key support at around $2.97.

My hypothesis based on todays action is that we again test that $2.97 support and see what happens there.

I leave public predictions out of the picture for a while and wait to see if I'm a guru or a bum on my oil call (which was not all that serious by the way, I'm not a predictive trader).

If she blows through support, there are not a lot of technical levels to trade from. I won't say it would go all the way to the next obvious support levels, but stranger things have happened. Folks are so universally bullish on the China/base metals story, it's almost a classic fade.

It will be interesting to see the effect on stocks suck as Freeport, Dodge Phelps and BHP if there is a bit of copper tankage.

Gold is Just a Commodity

This news seals it for me:

Pressure grows on IMF to sell some gold stores

SINGAPORE: The International Monetary Fund, one of the world's largest holders of gold, should sell some of its hoard to cover projected operating losses, say a growing number of the fund's executive directors.

The Washington-based lender predicts that it will lose $87.5 million next year and $280 million in 2009. Some directors say the fund should sell a portion of its 103 million ounces of gold, which are valued at $64.7 billion, and invest the proceeds in interest- bearing assets.

"We would support the use of fund gold as part of the solution to IMF financial needs," Tuomas Saarenheimo of Finland, chairman of a group that coordinates the position of European Union members on the fund's 24-member board, said during an interview in Washington.

The prospect of gold sales highlights the crunch faced by the fund as countries like Uruguay repay loans early, reducing interest income, and demand for fresh credit ebbs. Proponents must overcome opposition from the United States, the biggest owner of gold, which wants to keep prices high.... MORE ====>>

Real Money?

I don't know how many arguments I've sat through between the antagonists and protagonists of the "Gold is the only true currency" dogma. In such instances I feign some sage-like loftiness as to being above such materialistic concepts (when in reality the discussion is well over my head, I don't have a clue. lol)

I can only default to my observations; sometimes it acts like a currency, sometimes like a commodity. In the last few months at least, the reverse correlation to the USD index is quite striking, as per the chart on the left.

Without drawing all those tiresome lines all over the chart, technicians will recognize the short-term trading signals (all depending on time frame and style of course), long gold, short the dollar index.

So the question today is, whether to take both trades, or is it really the same trade? Is long gold really short the dollar by default?

For now, my thoughts are kill two birds with one stone, and gold is sexier than USD's, so I'm with gold, and hoping for a breakout of the recent highs.

A Nuclear Winter in Base Metals?

Nothing really startling happening around the futures markets today. Energies Bouncing a bit, hogs continuing up. Gold looks interesting for a long, that's about it as far as anything exciting.

A good time to dive into a 25 page PDF on base metals I found on Kitcometals titled:

The Coming Nuclear Winter Base Metals

It's a view I broadly subscribe to and despite the unpleasant imagery in the title and some arguable assertions in the text, an interesting read for the holders of base metal miners like FCX/PD, BHP, TCK and the like.

Check it out.

Bugger Commodities

How about Commodities Exchanges!!

Marketwatch: Nymex IPO rallies more than 100%

NMX135.95, +76.95, +130.4% ) IPO is up more than 100% after opening at $120, above its $59 price. The stck gained strength in the open market by rising to $140 a share. The performance marks the best opening-day gain by a U.S.-based new issue since Transmeta (TMTA :

transmeta corp del com

Nymex is the exchange where the energy and various metals contracts trade. I wish I had bragging rights for having subscribed to this, bus alas, no.

Whither To, Copper?

Copper has undoubtedly been one of the big stories in recent commodities boom, due in no small part to the China story. Many analysts are predicting a perpetual bull in the base metals because of the increasing demand from China and other Asian economies.

I've never been so sure. The cycles in these things always seem to have their way in the end.

The question with copper (and other base metals) is; It this the end for now? It is often remarked that base metals are a good barometer for the health of world economies and as such, things look a tad shabby technically. There was an important technical break-down only a few days ago, to arrive at this point of possible support. (well, we're a few ticks above it)

What copper does here will probably say a lot, particularly about copper, but about the the perpetual economic growth dogma that prevails today. (If the economic barometer thing is to be believed)

On the other hand, it could just be speculative heat coming out of the market.

Either way, it's do or die for copper right about here.

Cracks in Copper

Many of my commodity trading colleagues (and those who trade them via share-market proxies) are relentlessly bullish on base and precious metals. The secular trend in these metals makes it difficult to argue with them without appearing to be a total neg-head.

They will point to the fundamentals of ever increasing demand and dwindling supply. The opinions of one Jim Rodgers gives them great heart and courage of their convictions.

They could be right, but I'm not a believer on two fronts. 1/I think we are headed for a recession (I will leave the argument on that front to more formally educated pundits) and 2/ Psychologically I don't want to be a believer in anything. I just want to trade what I see, without bias.

Which brings me to the point of this post - Copper.

Many view copper as a barometer for the global economy and particularly, a barometer for the health of the China economy. I don't necessarily agree with that, but it has to be a barometer for something. As such Fridays price action must surely be viewed as a shot across the bow of whatever copper is a barometer of.

I don't follow the base metals not tradable on the US futures markets, (such as zinc, nickel, lead etc) but apparently they have taken a bit of a hit as well.

Anyway, I think it is technically significant, and copper on the electronic market is down further this morning, the Dec contract trading a short time ago at 302.50. Base metal bears may now have something to put the wind up all those relentless bulls.

Early days yet.

Selling Some Premium on Grains

Todays price action in Grains just look toppy to me as they sell off the highs. I'm taking some off the table and selling some calls as per my previous post.

Time to lighten off some gold as well.

Payday

Gold - Yup! Let's Call it a Breakout.

I called it here . Sure enough, it's broken through the trendline. Very basic TA here.

But the gold bugs are all aflutter; with this pragmatic Avalonian fluttering in unison. Something to cheer about while I wait for the stock-market to give a short signal.

Oh wait! The SP500 went down 10 points or so yesterday for the first time in, like 500 days! But I'm waiting for the cavalry to show up, those merciless dip buyers. (or is it the GOP doing all the buying, lol)

Gold Overtures at a Breakout

I am long Dec CBOT Gold, which I entered yesterday as a little swing trade inside this channel/triangle/consolidation zone thingy it's in. The thing with these trades is whether to take the profit at resistance (should it be kind enough to get to the line I have penciled in), or to watch and see if it breaks out. As I type this I'm watching volume kick up as price ticks over $600.

Potentially, I'll leave profit on the table in exchange for a chance at hitting one over the fence.

Hogs and Cattle are looking bullish too. No position, but wishing I was long and I'm looking for a lower risk long entry.