Quick Take: Copper Risks Lie Ahead
NEW YORK (TheStreet) -- Although copper has followed the S&P 500 higher throughout 2013, that might quickly change, according to commodities trader Eric Zuccarelli, who tells TheStreet's Joe Deaux his plan for the second half of the year.
Although many floor traders were looking for a worse-than-expected GDP number out of China, Zuccarelli said that the 7.5% growth wasn't all that bad.
However, based on other data throughout the last six months, it's apparent that there is an economic slowdown in China, regardless of what one GDP figure says, he said.
Based on several mines, accidents and projects, supply has remained restricted so far this year. But with those scenarios reversing, supply will begin to ramp up over the next several months, Zuccarelli said.
Along with increased supply hitting the copper market, a lack of demand from China is going to create a lot of downward pressure on the metal, according to Zuccarelli.
Adding to the lack of demand is the potential "cap" in the U.S. housing market due to rising interest rates. There's also no help coming from Europe, as anemic economic activity has been apparent for quite some time now.
"The slowing economic activity is certainly the word for copper," he said.
As for how to trade it, the short side seems like the only way to go. Recent resistance has been obvious near $3.20 per pound, so Zuccarelli suggest selling into strength and fading rallies.
A little higher than that level would be the ideal spot to sell. Between $3.25 and $3.30 should be a solid shorting point going into the third and fourth quarters, he concluded.
-- Written by Bret Kenwell in Petoskey, Mich.
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Bret Kenwell currently writes, blogs and also contributes to Robert Weinstein's Weekly Options Newsletter. Focuses on short-to-intermediate-term trading opportunities that can be exposed via options. He prefers to use debit trades on momentum setups and credit trades on support/resistance setups. He also focuses on building long-term wealth by searching for consistent, quality dividend paying companies and long-term growth companies. He considers himself the surfer, not the wave, in relation to the market and himself. He has no allegiance to either the bull side or the bear side.