Consider Purchasing Metals

It seems that a lot of markets as well as the economy, are at an important inflection point. If you are a trader and have been following this blog over the last few weeks, you would have noticed quite a few trade recommendations and might have been busy trading all the technical breakouts. So far, we have covered:

• Emerging market equities breaking out
• Silver at a major technical decisions point
• Gold & Silver ETF potentially breaking out
• Brent Crude breaking out due to Iraq Crisis
• Japanese Yen at a critical decision point

Adding another potential breakout to the list above is the overall commodity metal sector. If you flick back a few posts towards late May, I wrote an article titled “Metals Could Surprise Investors” where I argued that:

The commodity index itself peaked in late April and early May of 2011. Over the last three years, metals sector had performed awfully. After the beating and selling pressure of the last three years, coming into 2014, there hasn’t been a lot of better assets to purchase [from valuation standpoint] other than Nickel, Aluminium and Silver. These three metals have been the worst performers, down at least 50% since May 2011.

[Moreover] only two out of the three sectors have participated in the current commodity rally… energy has moved up slowly, while agriculture has been one of the main catalysts for this year commodity index strength. For the current rally to turn into a more sustainable bull market, we would need stronger participation from the metals sector (both industrial and precious metals). Both of these sub-sectors continue to base since middle of 2013…

Metals find themselves in a very tight range, with low volatility and potentially ready for a break in either direction. Therefore, I am now really considering a purchase of commodity base and precious metals in the Rogers Metals ETF seen in the chart below. Biggest weightings go towards Aluminium, Copper, Gold, Lead, Silver and Zinc; which make up 80% of the overall ETF. I might buy a trade position as soon as the price shows desire to break above the long term moving average and clear $9 per share (maybe even as early as today), with a tight stop loss below the recent lows.

Chart 1: Metals could positively surprise investors in the 2nd half of ’14

Source: Bar Chart