FCX had a huge run. I called for a short at $80 but the stock proved too bullish. I closed out my short at that point. Now the stock is up $9 from my closed position. I have entered short again, a little at $88.10 (previous resistance) and a little at the end of day $89.13
There are many reasons as to why FCX is overly hyped.
Reason 1: Copper demand is not that real. The latest inventories drop were due to restocking by China in anticipation of greater demand.
Reason 2: Copper is a highly volatile commodity. Today it has reached a 2 year high. And of course the metal cant just continue running higher. A 6% drop in the metal price equates to $3.40/pound. That is how unstable this commodity is.
Reason 3: USD has dropped so much as Tepper traders think quantitative easing. As the yield keeps going higher, soon, investors might run back to safety again especially when the economy is still not doing well.
Reason 4: Technical reason: This alone I trade on --- RSI divergence. FCX just made a new high, the RSI however is so high. The sign shows that FCX is extremely overbought as investors flock to FCX as an inflation hedge.
Reason 5: ISM Prices shot up so much. There is definitely severe inflation already, just not seen within the consumer side. However, the decreasing dollar makes commodity so expensive that manufacturing cannot progress faster than what we want it to be or the Feds.
I am thinking of the BIG SHORT of FCX just like how I shorted SNDK from $50 until it dropped below $40. This time, it’s different, I am not shorting FCX down the drain, but just a little, to its corrective trend line.
See the chart, it rules trading.
Good luck traders. Remember, just use a very very small amount if you consider to enter this trade.
4 comments:
"RSI divergence. FCX just made a new high, the RSI however is so high."
This sentence doesn't make any sense. Are you trying to say RSI didn't make a new high to show its divergence?
"A 6% drop in the metal price equates to $3.40/pound. That is how unstable this commodity is."
This sentence doesn't make any sense either. 6% drop from 3.6 is around 3.4. That is mathematics. Is that your logic for the unstableness?
I meant that RSI made a new high, while the price did not make a new high.
That's the divergence with the beginning of the year high.
Copper traded upwards due to weakness in USD, so it can drop 6%... It's the most volatile metal out there.
We may experience a deficit in 2011 and 2012, but it will be in surplus again in 2013 as predicted by the analysts. The 2007-2010 surplus is still more than the deficit in 2011 and 2012.
Sorry, but this is filled with rudimentary wishful thinking. I am not saying we can't see a correction, but nothing you say refutes Cu being in a secular bull market. Take a look at GLD for instance. The RSI is on fire as well, and yet, keeps going up. The facts are that the USD is headed lower, medium term. Trade on that and you may make money but trying to read a chart to foresee next week is purposeless if not slightly entertaining. By the way, if you think looking at Cu in nominal USD terms is how a Chinese purchaser looks at their input costs, then you really need to rethink investing all together.
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