These Two Base Metals Stocks Are Ready to Run

The base metals sector is a good gauge on the condition of the economy and where it is headed. Over the last five years, the price of the PowerShares DB Base Metals Fund (DBB) dropped more than 56% from its 2011 high to its low this year.

The sector has seen a significant bounce in 2016, a sign of increasing consumer demand and an improving economic outlook. These two stocks will benefit from that shift in the long term.

Southern Copper

Shares of Southern Copper (SCCO) made a series of lower highs and lower lows in 2015 and then flattened out this year under resistance in the $27 area.

This period of consolidation prepared the stock for a large and volatile breakout in November that saw it jump nearly 30% in a matter of a week. It has since been digesting those gains in a symmetrical triangle pattern, which, combined with the sharp move higher, has created flag or, in this case, a pennant formation.

This is a significant bullish pattern because the price objective of a successful breakout is measured by adding the height of the flagpole to the breakout point, which would be another significant move higher in the stock price. The relative strength indicator is confirming the overall positive momentum, but moving average convergence/divergence is weakening as the consolidation continues, and it should be monitored carefully.

The most bullish indicator is Chaikin money flow, which is firmly in positive territory, indicating that the stock is under accumulation.

Southern Copper is a long candidate after a break above the triangle downtrend line using a trailing percentage stop.

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