Warning Shots Fired! Copper Going Down! (FCX)

“Hear the loud alarum bells –
Brazen bells!
What a tale of terror, now, their turbulency tells!”
Edgar Allen Poe, ‘The Bells’

There are a few things you can count on –

First, that the noise will increase.

What does it mean?

Very simply that as the bull market pushes to ever-greater heights; the number of distractions both nationally and globally will also grow. And the news media will be very excited to offer you live, breathless coverage (and, later, in depth, detailed analysis) of every mysterious plane crash, every new patient with flu-like symptoms, every aerial video of a successful anti-terrorist drone strike, every underage illegal who slips across the Rio Grande, every neo-Soviet diplomatic parry, and every anti-constitutional (neo-Soviet) presidential decree.

In short, it will be very loud.

But not without purpose.

Because all that sound and fury will serve to accomplish one distinct end – to mask the reality of, and distract the average investor from the juggernaut strength of the current bull market in stocks.

And as a result, no one (relatively speaking) will notice when the Dow passes 18,000, hurdles 20,000 and begins its subsequent push toward 25,000. The focus will be so intense and the volume level so deafening that Main Street investors will remain too scared to hop aboard until it’s far too late to participate in Wall Street’s record winnings.

speaker[click on pic to listen]
That’s why we say you’ve got to be in now, you must not be scared out of your long positions and you have to ignore the screams of the talking heads, regardless how shrill or threatening they may sound. Stick to your guns, and you’ll see your rewards.

What’s that, McAbby? Nothing to worry about?

We didn’t say that. There’s plenty to worry about. But that’s separate from our shared goal of making money in the market. You can and should prepare yourself for every eventuality that may strike – including diseases, aliens, Soviets, anti-constitutionalists, what have you. But you also have to make your investment dollars work.

And that’s why you read us.

NUMBER II

The second thing you can count on is a phenomenon that so pains us to enumerate because it speaks directly to the darkest aspect of the human experience. We’re not even sure how to define it, but we’ll start like this.

As the market rises you will notice an incredible swell in the number and intensity of those stricken with some form of abnormal psychology.

Along with volume levels at 11, the number of people succumbing to mental illness, anxiety, depression and every other form of childish madness will intensify until you’re convinced that all about you have lost their heads.

And not only that. But we suspect that the level of violence and cruelty will also increase in what will come to be pockets of civil unrest unlike anything we’ve experienced since the late 1960’s.

flowergun
And for this, too, you’ll need to prepare.

But we’ll have more to say on that in upcoming letters.

The Third Thing You Can Rely Upon

For now, we want to look at a couple of commodities, expand on a request for information from a dear reader, and in so doing, outline for you the third phenomenon that you can come to expect from the markets and the world over the near term.

Our good reader’s name was Dan, and he wrote thus –

“Matt:
Are there some fundamental reasons that align with your technical analysis supporting your hypothesis that an increase in the price of oil will not coincide with an increase in the oil services? What dynamics need to be expressed to have oil increase while the finite capacity of the drillers and service providers would decrease?”

Indeed, Danny boy, indeed.

You’ll remember that back on July 24th we wrote of a coming closing of the performance gap between the price of oil and the oil service industry and suggested a couple of ETF’s with which to play the idea.

The letter was called A Crude (but not Vulgar) Pairs Trade, and there we stated clearly that the oil services were due for a correction simply because they had been overbid as crude pushed over the $100 marker and kept on rising.

Nothing more. Just a wash of money that came too hard and too fast. Not unlike the situation in the precious metals in 2011, where cash flows from wild-eyed investors slammed the price of silver and gold against the investment roof before bleeding out over the next three years.

Was there any change in gold or silver’s fundamentals at that time?

None.

Has there been any appreciable change since then?

Nope.

So why do these things happen?

That brings us to our third item to rely upon.

Fundamentals – and even technicals – will have less and less to offer us in the upcoming investment environment. Because of the unprecedented level of liquidity in the system, everything will come to be about cash flows and momentum and of course, sentiment. Traditional supply and demand calculations will be replaced by an investor demand calculus, as that cohort increasingly takes the reins of the commodity price horse.

As they’re about to do now with copper.

Take a look –

copper
As early as today we could see a major drop for copper.

Why?

• Price is perched on the 137 day moving average (in red), below which there is no immediate support.
• Sale volumes are accelerating (in blue).
• And MACD will today confirm a bearish RSI break from two weeks back, by diving below its own midway waterline (in black).

That should be enough for the technicians to begin selling.

And if you want in on the action, we recommend Freeport MacMoRan Copper and Gold (NYSE:FCX) as a proxy. Their chart looks almost exactly like that of copper.

Many happy returns,

Matt McAbby, Senior Analyst, Normandy Research

See what people are saying...

  1. Ron

    as of today the 200 day MA is at $34.36. Would you set that as a probable price target for any puts you might purchase for FCX. And, by the way, what put would you be looking at?

  2. WTWOODWARD

    great article on copper
    thanks so much,
    I want to subscribe
    please send info

  3. charles mcnulty

    Copper wiring is becoming a thing of the past.

  4. charles mcnulty

    Copper wiring is being used less and less as the cloud takes over.

  5. Gustavo

    Technical Analysis:
    FXC Has made a double bottom in the Daily chart. In the Weekly chart it has given a buy signal. Therefore this market is heading higher.

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