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A Legitimate Triple-Digit Opportunity in Copper Starts TodayBy
Thursday, August 16, 2012
Last fall, I received a powerful investment lesson...
"THIS is what a market bottom in copper feels like," my colleague Steve Sjuggerud told me.
At the time, investors hated copper. The market had reached its "puke point," as Steve likes to say. Copper was down 29% in the previous eight months and down 5%-plus that day alone. He saw a chance to make a ridiculous amount of money if things got just a little "less bad" in the copper market.
I've sat next to Steve every day for the last two years. But I've never seen him so confident in a short-term opportunity.
The next day, Steve recommended giant copper producer Freeport-McMoRan (NYSE: FCX) to his True Wealth subscribers. The stock soared 20% over the following week.
Today, the copper market is at a similar "puke point." In fact, today's opportunity is even better than what Steve saw last fall. This setup has only occurred three times in the last decade. And investors could have pocketed 172% gains on average in just over a year. We could be looking at a similar trade now.
Let me explain...
Copper is one of the most useful and abundant base metals in the world. It's a vital part of building construction, alloys, electronics, and more. Copper's main users are in fast-developing emerging markets... most notably, China.
China accounts for roughly 38% of global copper demand. Its domestic demand has increased over 13% a year for the last 20 years. In short, a healthy global copper market depends on China. And that's a big reason why you have such a great buying opportunity today...
You see, China's economy is slowing down. A year ago, China's economy grew at nearly 10% a year. Today, that figure is down to 7.6%.
The slowdown in China's economy and the expected slowdown in its domestic copper demand have crushed the copper price. It's fallen more than 25% in less than year.
I believe the selloff is overdone.
The big news sources enjoyed reporting that China's copper imports fell 17.5% between May and June. What they didn't tell you is that June imports were up 24% over the previous year. And July imports were up again.
In other words, a slowing Chinese economy doesn't mean copper demand will plummet. It doesn't necessarily mean demand will fall. Slower growth is the likely scenario. But it looks like the market is pricing in a complete collapse.
We can see this negative sentiment through futures trades. Today, copper traders are near record-short levels on copper. This means they expect copper prices to continue to fall. But historically, when traders agree on something, the exact opposite occurs. Prices rise.
And when copper prices rise, Freeport-McMoRan soars. Take a look...
 The net position (long positions minus short positions) of copper futures traders is in blue. The black line is Freeport-McMoRan. As you can see, when copper traders all expect the metal to fall, shares of Freeport begin dramatic rallies.
We've seen today's setup three times in the last decade. All three trades have been big winners. On average, investors would have walked away with 172% gains in just over a year. The specifics of each trade are below...
Importantly, Freeport appears to be beginning a new uptrend today. Shares recently broke out to a three-month high. This could be the beginning of the next big move higher...
Of course, nothing is a sure thing. But historically, this trade has been good for triple-digit gains in just over a year.
Good investing,
Brett Eversole
Further Reading:
Earlier this month, Brett predicted a move higher in yet another beaten-down metal. The metal "is in a real downtrend right now," he wrote. "But with sentiment so negative, it's hard to imagine the metal moving much lower from here." Readers who bought in are already seeing gains. Read more on his contrarian call here: A 20% Gain in Just Three Months – Trading This Hated Metal.
Market NotesMORE BULLISH CONFIRMATION FOR AMERICA We have another update on how "things can't be all that bad" in America. This one comes from Home Depot (HD)...
This year, we've featured many charts that display how the U.S. economy, while not great, can't be doing all that bad. For example, we've noted the tremendous share price strength in high-end homebuilder Toll Brothers, giant hotel operator Wyndham Worldwide, and giant office landlord Boston Properties. These companies are booking solid profits and seeing their share prices soar.
An even more powerful example of how things can't be all that bad is Home Depot. Owning a home is the American dream. "The Depot" is America's largest home improvement chain. It sells the things we need to remodel kitchens, build backdoor patios, and build home additions. This makes Home Depot's share price an excellent gauge of what's happening in America.
As you can see from the two-year chart below, things are "happening." This week, Home Depot reported solid second-quarter results... results that helped the stock register its highest high in 12 years.
We know investment newsletter readers are bombarded with claims that the U.S. economy is toast. We have to comment on the situation by noting that someday, it might be. But as long as Home Depot is doing brisk business and enjoying a soaring share price, we'll say "things can't be all that bad." Trade accordingly!
– Brian Hunt
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