Moving on, given the sharp fall in commodities and resource stocks as a result of comments by the Chinese Premier, we analyse the copper price and see if the news is as bad as investors think it is.
Our feature chart depicts the long-term price history of Comex copper. For the fourth time in two decades, the price has moved up to the $1.25 to $1.50 area. In 1974 and again in 1980 price also rose to these levels. On both those occasions, price fell straight back down again, wiping out all the gains.
Similar behaviour occurred in the mid nineties, although there was a relief rally from late 1996 to late 1997. If we look back through the 1960s and 70s, the action is always the same - up, then straight back down! Then came the late 80s.That period was very different, with price holding up for four years.
Will the price of copper once again trade in that boom - bust pattern or will it behave as it did in the mid 80s? Difficult to tell, and economists will have some very different thoughts on the matter. But coming from a purely charting perspective we cannot offer any strong convictions.
What we do know, is that the price of copper (and other base metals) has not dictated the price of our major resource companies. The correlation between copper (we have used copper as a proxy for base metals in general) and BHP can be viewed on the chart – it can be seen that since the mid 80s, the performance of BHP has had very little to do with movements in the copper price. This was different to the early 80s where stock prices and copper prices were more correlated – even so the price of BHP and MIM moved higher for 12 months before the impact of declining metal prices adversely affected their share price. Our point is that even if the copper price was to continue to come under pressure, there is no guarantee that resource stocks will be impacted. We have discussed the potential for Resource underperformance before, and that theme is still emerging – but this does not necessarily mean that share prices will continue to come down. We still remain cautious on the smaller resource stocks and maintain that at this stage they are likely to continue to underperform. Those wishing to increase exposure to the smaller end of the market would be better looking for opportunities in the industrial sector.
We will review some of the resource stocks individually later in this report, and will show that they are at, or approaching, significant support levels……the effects of a declining Australian dollar might be finally starting to kick in!
End of report.
Cheers..
OXR Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
