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Time to Tap the Copper Top

Last week, copper was one of the best-performing commodities, rallying 4%


The global economy isn’t exactly what you would call booming, but recent data in the manufacturing sector suggest that things are improving, albeit at a modest pace. The latest example of this improvement in the global economy comes from China, as that nation saw the first uptick in the manufacturing sector in 13 months. Here we saw that the HSBC Purchasing Managers’ Survey (PMI) rose to 50.5 in November from 49.5 in October. This was the first time since October 2011 that the survey crossed above 50. Any number over 50 is said to indicate accelerating growth, so this is definitely a positive sign for China, and by extension the global economy.

Now, because China’s manufacturing sector is a big consumer of raw materials, and in particular industrial metals, there is one segment of the market that should continue to see a nice bounce from the data, and that sector is copper.

Last week, copper was actually one of the best-performing commodities, rallying about 4%. This is significant, because it represents the beginning of a reversal in the space that now, technically speaking, has broken the recent downtrend that’s been in place since mid-September.

JJC is Primed to Buy

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The chart here of the iPath DJ-UBS Copper Total Return ETN (NYSE:JJC), an exchange-traded note designed to duplicate the spot price of copper, shows that the multi-use industrial metal now has broken above both the 50- and 200-day moving averages.

This is a bullish indicator for JJC, and along with the improving economic data, I suspect traders could see some very nice upside going forward in copper. In fact, I suspect that we could see a move up to levels above $50 like we witnessed in March. Of course, whenever you’re trading any metal there is a chance for a lot of volatility, so be sure you set a stop-loss price on your JJC purchase somewhere in the area of 10% below your buy price.

Copper Spreads the Wealth

Finally, copper has historically been a leading indicator for the markets, so the recent breakout in the metal certainly is a positive for the global economy. In fact, copper is known around professional trading circles as the commodity that has a “master’s degree in global economics.” When copper prices begin to break out, it typically is a leading indicator of global economic activity. That breakout is good for both copper and the global economy—so now is the time to tap the copper top.

As of this writing, Jim Woods did not hold a position in any of the aforementioned securities.

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