Copper Shines On

While investors have focused on oil, coal and steel prices, copper prices have quietly hung in and held the breakout in the weekly chart. The persistent strength in copper is at odds with the relatively weak behavior of the copper mining stocks since the beginning of June, but the mining stocks have pulled back to some interesting support levels and traders may want to take another look at the group on the long side. We highlighted Southern Copper (PCU - commentary - Cramer's Take) in April, and we still like the name on the long side, but there are other names in the space to consider.

The fact that the base metal stocks have been consolidating since the beginning of the year may help traders on the long side. The energy, coal and steel names have had great runs this year, but traders have been liquidating these stocks as the last holdouts on the upside during the recent decline. The copper stocks have already seen a pullback, and the recent action in the group has been relatively benign compared to the leadership names in the commodity related sector.

Copper HG Composite

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Copper has recently moved back toward the all-time highs for the metal. The breakout over resistance in copper confirms the large bullish ascending triangle pattern in place on the long-term weekly chart. The overall look for the commodity is bullish and on the offensive. This is interesting, because the metal is economically sensitive and traders are worried about a global slowdown. We believe odds favor a continuation of the primary uptrend in copper, which should drag the copper mining names along to the upside.

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Freeport-McMoRan (FCX)

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As for equities in the group other than the aforementioned PCU, take a look at Freeport-McMoRan Copper & Gold (FCX - commentary - Cramer's Take). FCX is the world's largest publicly owned copper miner and is the world's leading producer of molybdenum and a significant producer of gold.

FCX's long-term chart has a large bullish inverse head-and-shoulders pattern in place. The stock broke out over resistance in April and has recently come back to this support line for a retest. The retest of support appears to be a good spot for bulls to get long the stock and look for a resumption of the primary uptrend.

Traders can get long FCX at $107 and use a stop loss of $99, which would be a break of the primary uptrend channel. If copper follows through with the bullish weekly chart to the upside and resumes the primary trend, then the recent weakness in the copper mining names should be an opportunity to get long these names at attractive levels.

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At the time of publication, John Hughes and Scott Maragioglio were long FCX and PCU.

Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.