A Good Way to Play Copper's Big Bounce

07/04/2012 10:00 am EST


Andy Crowder

Editor, Wyatt Investment Research

There is one major sign that copper may be regaining some of its luster after a long hibernation, writes Andy Crowder of The Daily Profit.

Last Friday, commercial traders (the smart money) reached a near-record net long position in copper.

This type of extreme has only occurred three times over the past 35 years—November 2001, January 2007, and February and March 2009. Each occurrence led to significant rallies over the next few months.

At the same time, small speculators (dumb money) are holding their second-smallest long position in over a decade in copper. Again, we almost never see “smart money” and “dumb money” at such opposite extremes...and when we do, simply stated, a rally is typically in the making. Will history repeat itself again?

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If the “smart money” is right again and copper does move higher over the next several months, one of the best ways to take advantage of the rise in copper is through the purchase (or some bullish variation) of Freeport McMoran Copper & Gold (FCX).

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Again, you can either buy the stock outright or use some variation of a credit spread. I prefer selling premium, and in this case, if I think a stock is going higher I might sell some bullish put spreads, otherwise known as vertical put credit spreads.

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A Metal Spread Trade Worth a Look

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