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December 18, 2007

The Copper Outlook
by Sol Palha

"People of mediocre ability sometimes achieve outstanding success because they don't know when to quit. Most men succeed because they are determined to." ~ George E. Allen 1832-1907, British Publisher, Author, Engraver

Copper is one of the most useful metals on this planet. It's resistant to corrosion, a good conductor of electricity and it's also flexible. It is used in so many appliances that it would take forever to list them all however here is a small sample computers, cellular phones, electrical wiring, transformers, motors, air conditioning, cars, tractors, roofing, plumbing and the list goes on and on. There is almost no industry that does not use copper in one way or another and now thanks to the huge demand stemming from Asia (primarily from India and China) and Latin America prices have been soaring and will continue to soar for the foreseeable future.

Today we are just going to touch on this topic as it's another subject that could take up an entire issue to deal with. Japan currently consumes roughly 25 pounds of copper per capita, north America roughly 22 pounds but the rapidly developing countries of the world such as India, China and many countries in South America barely consume 5 pounds per capita. If their rates were to match those of Japan and North America, current copper prices would appear to be ridiculous bargains to say the least. In fact based on current trends there is every reason to assume that these countries needs could surpass those of both Japan and North America especially those of China and India. There other issue is supply and demand but to examine in it detail would take far too much time; bottom line is that supply is not keeping up with demand and it's getting harder and harder to locate huge new sources of copper. Based on these factors we feel that there is a lot more upside potential in this sector and as such have been looking for a way to position in ourselves in this area. First let's take a look at two charts one is a 1 year chart and the second is 9 year chart.

It can clearly be seen that copper is trading in a somewhat wide channel formation that ranges from 2.80to 3.80 and each time it has tested 3.80 it has broken down. Copper has also put in what amounts to a triple top formation and if the lower part of the channel does not hold it could correct all the way down to the 2.40 ranges; if this were to happen we would view it as a lovely buying opportunity. Thus if copper embarks on hard correction do not view it as a bad situation but act as though you have been given a wonderful opportunity to buy additional shares in copper producing companies.

Now if Copper can trade past 3.80 for 21 days then its virtually a given that it will go on put in a several new highs and should then challenge the 4.20 price point level before pulling back.

In this long term 10 year chart we find that the 2.90 price point level also provides a major zone of support; this is a separate confirmation from a very long term chart.

Traders can now start to look for stocks that have pulled back in this sector; for those looking for big gains perform trend analysis and focus on the small names.

Final note

This long term chart is indicating that in the mid term time frames China could experience what amounts to a minor recession. Thus copper could find support say at present level and rally all the way to the 3.80-4.10 ranges but then experience a hard pull back. If this happens it would be the trigger to suggest that China is close to entering into a recessionary period; the majority will view this as a disaster but it will just take out a lot of the excessive speculation that the Chinese markets are rife with and provide the basis the basis for the next leg up. Long term Chinas prospects are still incredibly bright.

"Philosophy offers the rather cold consolation that perhaps we and our planet do not actually exist; religion presents the contradictory and scarcely more comforting thought that we exist but that we cannot hope to get anywhere until we cease to exist. Alcohol, in attempting to resolve the contradiction, produces vivid patterns of Truth which vanish like snow in the morning sun and cannot be recalled; the revelations of poetry are as wonderful as a comet in the skies -- and as mysterious. Love, which was once believed to contain the Answer, we now know to be nothing more than an inherited behaviour pattern." ~ James Thurber 1894-1961, American Humorist, Illustrator

Sol Palha
TacticalInvestor.com

Sol Palha is a market analyst and educator who uses Mass Psychology, Technical Analysis and Esoteric Cycles to keep you on the right side of the market. He and his partners are on the web at www.tacticalinvestor.com.

The information contained herein is deemed reliable but no guarantee is made about its completeness or accuracy. The reader accepts this information on the condition that errors or omissions shall not be made the basis for any claim, demand or cause for action. Any statements non-factual in nature constitute only current opinions, which are subject to change. The author/publisher may or may not have a position in the securities and/or options relating thereto, & may make purchases and/or sales of these securities relating thereto from time to time in the open market or otherwise. Neither the information, nor opinions expressed, shall be construed as a solicitation to buy or sell any stock, futures or options contract mentioned herein. The author/publisher of this letter is not a qualified financial advisor & is not acting as such in this publication. Investors are urged to obtain the advice of a qualified financial & investment advisor before entering any financial transaction.

Copyright © 2004-2010 Sol Palha, All rights reserved.

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