Copper

I like the look of Copper right now. The commodity has already had quite a move, but I think there's more left in it. Why do I think that? The Commitment of Traders (C.O.T.) data. The commitment of traders is the data that is required to be reported by large traders and commercial speculators and it can help with timing trades. Here's a great site were you can see commodity charts with COT data.

So how does the COT data work? Well, traders and commercial hedgers that hold large enough positions must disclose there positions to the Commodities Futures Trading Commission (CFTC) and then the CFTC releases this data every Friday. Traders look at this data to get an idea of what commodities capital is flowing into and out of.

As a rule of thumb, prices will go in the direction of the large traders because they are taking large directional positions in the commodity and prices will go the opposite way of the commercials because commercials are hedging. This rule of thumb works for a while, but eventually extreme readings will occur and this is often a sign that the trend will be ending. I like to look for a cross of the Large Traders and Commercials (see the chart below). When the Large Traders line crosses the Commercials, usually around the zero line, the commodity will continue in the general direction of the already present trend. That is what's going on with Copper right now. Here's a chart:Note the extreme readings in the COT data that were registered right after Copper hit its bottom. So we like the trend in copper and we believe that it will continue for a little while because of the COT readings...what now? Well, we either take direct positions in copper via futures contracts, options, or an etf, or we buy stocks.

Here are a couple of copper stocks that are worth looking into. The first is FCX. I took a position in this stock on Thursday. Here's the chart:Another good copper stock is PCU. Here's its chart:Both of these look like great trades right now. I have not put on a position in PCU but I do have both stocks on my watchlist. I encourage you to check out the COT data for various commodities and currencies if you do not already. It does not necessarily provide pinpoint entries and exits (that's what technical analysis is for) but it can help in spotting major pivot points and also provide a confirmation of trends that are already present.

Have a great weekend.

TLT