Copper Keeps Pointing Toward Growth

1.) DR. COPPER – It’s often said that copper leads economic demand and overall growth. It’s referred to as “Dr. Copper” as a metal with a "PhD in economics” because of its widespread use in industrial and construction applications. Most investors still view copper as an electrification trade. That’s too small. Copper is the metal of civilization. Every launch facility needs copper. Every solar array needs copper. Every satellite needs copper. Every robotic system needs copper. Every power transmission network needs copper. But here’s what’s important…the next major source of commodity demand isn’t coming from another housing boom, another electric vehicle cycle, or another government spending package. It’s likely coming from space. For decades, space exploration was little more than a government-funded science experiment. Now it’s rapidly becoming an industry. Private companies are launching satellites by the thousands. Reusable rockets are becoming commonplace. Governments and corporations are discussing lunar infrastructure, deep-space manufacturing, and asteroid mining as if they’re inevitable. Whether you believe those developments are five years away or fifty years away doesn’t matter because markets don’t wait for certainty. They discount the future long before it arrives. This isn’t a call to buy copper or any space-related stock. I’m simply pointing to the likelihood of economic demand growth happening, but in a way that many still don’t expect. As you can see…copper isn’t waiting around for the next “narrative”.

2.) SHORTS – I’ve often discussed how short sellers are good for markets. They provide liquidity and balance to market structure. But those short sellers are also guaranteed buyers! That fact creates a scenario where markets can really squeeze higher as they rush to cover their short positions as markets go up. That is part of what we are likely seeing today. It’s clear from some talking heads and big banks that people were selling/going short over the last few days/weeks. Bank of America and JP Morgan were pretty loud about telling their clients (or anyone who’d listen – hint: don’t) to sell. Another way to look at short sellers is via “inverse ETFs.” Investors can use an inverse ETF versus taking an actual short position. This can be good because an investor can create a hedge or express a bearish exposure via one of these ETFs. The problem is that too many unsophisticated investors buy and hold these things. That’s not good due to the option time premium burning up inside these things. They weren’t designed to be held long term, but to be traded. Nevertheless, there are things we can take away from inverse ETF buyers. Coming into Thursday last week, inverse ETF volume had hit 42% of speculator total. This indicator can be useful since without a broader negative catalyst, this level is where pullbacks tend to historically stop. Today’s pre-market action seems to agree.

3.) OIL – Oil continues to crash, now down 29% from its Inflation Cycle Peak back in early April. What’s next? Support at the $75 area. Just as a reminder, this is a double-edged sword. On one hand, falling oil is good for the consumer. But we have to consider what occurred the last time we saw oil spike and crash in fairly short order. 2008 and 2022 are the two previous times. I’ve shown you this chart before, but it’s always worth a gentle reminder that an investment system that provides for potential downside protection is not just important, but mandatory. Is that a call for a market top? Nope. Far from it. There are too many signals still suggesting this market is healthy. But one day it won't be, and it's important to be ready.