Commodities Essential - August 31, 2011

Alert: copper rally facing resistance.

Let’s add BOM now … 

Copper prices have rallied steadily since a major collapse that accompanied a downturn in risk appetite. The relief rally in risk taking has helped copper prices rebound; slight improvements in the demand picture from and expectations for China have helped; and so have supply/production concerns out of Chile.  

But copper faces formidable technical resistance at current levels. Click here to view some quick commentary on the technical set-up. And I think, based on its correlation with risk, my expectations for the stock market to roll over again soon will be another weight on copper. Ultimately, if this plays out, it should trump Chinese demand expectations (buyers will hold off for lower prices) … even if major concern over China’s economy does not resurface. 

I think now represents a good time to play for falling copper prices. To do that, let’s add BOM (PowerShares DB Base Metals Double Short ETN). 

[BOM is also exposed to aluminum and zinc prices. Both will most likely mirror the copper price action, allowing BOM to closely follow copper prices. But for a more pure copper play you may consider selling short the iPath DJ-UBS Total Return Copper Index, symbol JJC …]  

Trade Essentials.  

BOM (Last Price: $11.19) 

Place an order to BUY shares of PowerShares DB Base Metals Double Short ETN, symbol BOM, at the market. Then place an order to SELL ALL shares of PowerShares DB Base Metals Double Short ETN, symbol BOM, at $10.53, STOP; this order is good till cancelled.