‘Dr Copper’ is back!
Prices have rebounded almost 15% since the lows of early August.
And with China announcing one of its biggest stimulus plans in years, resource stocks are on a tear this week.
On Tuesday, copper futures had one of their best daily moves in years, finishing up more than 4%.
But for my paid readership group, we’ve been building our exposure well ahead of this potential turning point in commodities.
To understand why we did that, I thought I’d share a recent update sent to my paid readership group at Diggers and Drillers.
This update was sent out BEFORE China’s stimulus announcement, during a deeply pessimistic phase in the resource market.
Of course, it’s still early in a potential rebound…
But by sharing my D&D update, you’ll be able to see our D&D strategy in action.
And how it can give investors the confidence to buy when most are fearful.
Enjoy!
The market knew first
Despite widespread worry about the demise of China’s economy, copper has been a resilient force in recent weeks.
But does that demonstrate a misguided market?
Or is something else happening here?
In my mind, copper’s relative strength suggests that conditions in China may not be as dire as some anticipate.
As you can see below, copper-bottomed in early August and has been holding since:
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| Source: TradingView |
That was right on cue with the release of bearish news on China’s economy.
And since then, copper prices have continued to climb a wall of worry.
So, how should you interpret
Dr Copper’s resilience?
As you can see on the chart above, after a brief spike in 2024, copper is back consolidating along its long-term trading pattern.
Given that prices continue to defy concerns about China’s economy, I believe much of that weakness is behind us or at least fully priced in.
The reasons might not be apparent right now.
Perhaps we’ll hear of a major stimulus package from Chinese authorities in the coming months.
Or falling rates in the West will drive global growth and beat expectations.
Understanding the WHY is pure speculation; we’ll only know the reasons once official data surfaces.
All you need to know for now is that copper prices hint at future strength.
But rather than wait for the ‘feel-good’ news stories, why not capitalise on lower prices now?
As investors, we should seek opportunities while the majority remain fearful.
Price action leads market data
For some, technical analysis is more like voodoo science.
Yet, there is a fundamental cause behind specific price patterns.
You see, large institutional traders drive futures markets, including mega-firms that use copper for their business operations.
If these institutions believe demand will rise, they’ll ramp up purchases ahead of expected rises.
This price action is demonstrated on the chart in real-time, well before official data is released or understood by the broader market.
Take the State Grid Corporation of China as an example… This is a big institutional player in the copper market.
As the world’s largest utility company, it’s an important driver of copper demand.
As you know, copper is used to install and upgrade grids, an important consideration as we shift toward electrification.
Firms like this sit at the coal face and drive demand in the copper market.
Price action, represented by the chart, is the collective scale weighing buyers against sellers in the market.
Understanding specific patterns can give you a head start on where the market might be headed in the coming months. It offers investors probabilities but not certainties.
And I believe copper’s price action is tipping in favour of a strengthening market.
Again, that flies in the face of weak economic conditions in China and global growth concerns right now.
Other analysts might have their own interpretation, but that’s how I view Dr Copper as a leading indicator.
For the moment, prices are not surging.
Yet, copper displays remarkable strength against a bleak backdrop in China and weak economic growth globally.
Copper’s relative strength could be an early clue that the worst may be over for China’s economic woes.
And a signal that conditions could become far more favourable for resource stocks over the coming months.
As you know, mining stocks sold off heavily in August and remain depressed.
However, with copper displaying some green shoots, this could be a prime time to build our position.
Might we consider August 2024 one of the most opportune times to invest in copper?
I certainly believe that’s possible.
But there’s no point discussing this without taking action.
Earlier this month, I issued two new copper stock recommendations to my premium members at Mining: Phase One.
And I’ll be looking to do the same with my paid readership group at Diggers & Drillers shortly.
Regards,
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James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
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