Thursday, December 21, 2006

Copper & Hank McKinnell

Since I started this blog Thanksgiving week my bias has been BEARISH on Copper as it consolidates from its blow off top of earlier this year and as LME inventories rise on cooler than expected demand from China and a slower U.S. housing market. The copper slide has accelerated during the month of December. Today, the slide was enhanced by the GDP being adjusted to a 2% annual pace in the 3rd quarter along with the negative reading in the Philly Fed Manufacturing report, though I understand Hank McKinnell, the outrageously wealthy and now retired CEO of Pfizer will be subsidizing the Philly factories for the rest of his life, so there are no worries there! Here's the copper chart... By double clicking the chart, you can get a bigger view and you'll notice that I've thrown in a 300 day moving average since the 200 day has been handily broken. Copper seems destined to do what many other commodities have done, even the entire CRB, in breaking through very long term moving averages. 300 day could mean another 10c leg down to $2.85 a pound. If it drops below $2.85, McKinnell, from what I hear, will step in and act as a market maker and permanently support the copper market! Go Hank!

But notice the upper RSI portion of the chart: relative strength is at the lower end of the range and that has often preceded sharp near term bounces. An even stronger indication that a bounce might be in order is that's Jim Cramer said earlier today that copper is a "fiasco" which he wants nothing to do with (Click here for the Cramerian fun and games). Wow.. sounds like it's time to load up!

Ok, seriously now, there is indeed a supply abundance in the short dated contracts which is one of the reasons that Cramer ticked off and is indeed a good reason why Copper could test the 300 day - something it hasn't done since 2005. So while I think it is looking like we're heading for a test of the 300 day moving average, I wouldn't be surprised to first see a brief rebound, or dead cat bounce.

**CEOs and companies named in this post while resembling real life, outrageously paid and retired incompetent boobs who were let go from poorly run real world drug companies were purely fictional and coincidental.

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