“Red Metal” Keeps on Rising
Trading Ideas
With Copper supplies expected to remain tight going into 2011, some traders may wish to explore buying bull spreads in Copper futures. An example of this trade would be buying March 2011 Copper and selling September 2011 Copper. Currently, March Copper is trading at a 0.0335 premium to the September contract. Buyers of the bull spread would want to see this March premium widen even further.
Fundamentals
The bull market in Copper appears alive and well, with prices holding near the highs for the year. The recent upward move comes as large traders continue to add to long positions in Copper, particularly at the London Metal Exchange (LME), in anticipation of a physical Copper ETF being launched by JP Morgan. In addition, increased demand out of Asia and continued supply concerns have some analysts calling for a Copper deficit in 2011. Copper stocks on the LME have been falling steadily throughout the year, and the tight exchange warehouse stocks have caused the Copper market to move towards a backwardation where nearby futures are trading at a premium to more deferred contract months, as buyers are willing to pay a premium to obtain Copper for near-term delivery.
Technical Notes
Looking at the daily chart for March Copper, we notice prices making a new yearly high on well above average volume on Tuesday. Prices are significantly above the 200-day moving average and are starting to pull away from the 20-day MA as well, after last week’s price surge ended the 2-week long price correction. 4.2500 is now seen as the next major upside price target, with strong support seen at the November 17th low of 3.6110.
Mike Zarembski, Senior Commodity Analyst
