Copper Top?

• Posted by Greg Harmon
• on February 9th, 2011

You can barely get the company name Freeport McMoran (Ticker: FCX) out before someone says the word Copper.  The two are virtually synonymous.  So with FCX in a pullback lately there is talk about a top in Copper.   Let’s examine this.  Below is the chart for FCX.

It is clearly off of the highs at 61 (split adjusted) and vacillating near the long term support/resistance line at 54. The Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicator suggest the move lower to continue. It has just crossed through the 50 day Simple Moving Average (SMA) and looks to find support at 53ish before reaching the 100 day SMA at 51.82. So Copper has topped right? Not so fast. Is FCX really a good proxy for Copper? Look at the ratio chart below for the Copper ETF JJC against FCX.

I don’t know what you learned in school but I was taught that a close correlation between two things would track in a straight horizontal line. This chart shows that the relationship between FCX and Copper is all over the map with 40% swings in the last 7 months. First take away: the next time you are doing word association and someone says Freeport try anything besides Copper as a response. But back to our question, has Copper topped? maybe we should look at Copper directly via that JJC ETF.

The chart above for JJC shows a clear uptrending channel over the last 7 months. The RSI and MACD are dipping, suggesting that the recent rollover in price may continue, but it has a long way to go before that trend can be called finished. There is support at 59.20 and then the bottom of the channel at 56.70. If those both fail I will jump on the Copper Top band wagon, but not until then.

(As always you can see details of individual charts and more on my StockTwits feed and on chartly.)

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