The compelling case for CPER regarding the correction (NYSEARCA:CPER)

Copper futures (HG1:COM) rose to a high of nearly $5.20 per pound in May 2024 as the rally lost momentum. In an early June 2024 Seeking Alpha article on the United States Copper Index Fund, LP ETF product (NYSEARCA:CPER), I came to the conclusion:

I am buying less copper after the recent correction. While it is difficult to determine bottoms as markets tend to fall to irrational, illogical and unreasonable prices during corrections, the same is true for the upside as well. Therefore, the final top for the red metal could be well above the target of $6.80 per pound.

COMEX copper futures were at $4.6625 per pound on June 3, with CPER at $28.66 per share. The downtrend in copper has continued, with the price falling below the $4 mark in August, which could be an irrational, illogical and unreasonable price given the fundamentals of the red metal. The current The price of an asset or commodity is always the right price because it is the level at which buyers and sellers meet in a transparent market.

Chinese economic weakness, rising inventories and the potential for a recession in the US have weighed on copper, pushing the metal to levels where the potential for a recovery is increasing. Meanwhile, the run to the May 2024 record high may have been a sign of things to come, and the current correction a golden buying opportunity for investors and traders with patience and perseverance.

Copper falls over 20% – A bearish short-term trend, but the bullish long-term trend remains intact

COMEX copper futures hit a record high of $5.1990 per pound in May 2024 when, as mentioned, they ran out of upward momentum.

The monthly chart from the early 1970s shows the significant 24.58% correction that pushed copper futures to a low of $3.9210 per pound in August.

While the short-term trend remains bearish, with September copper futures trading around $4.15, the long-term bullish path of least resistance remains intact. Critical technical support levels are at $3.5195, the October 2023 low, and $3.1315, the July 2022 low.

China and inventories are depressing the price of copper

China's economic weakness has put pressure on copper prices as China is the world's largest copper consumer.

The chart shows that China consumed 57% of the world's refined copper in 2023. The slowdown in the Chinese economy has weighed on the price and was one of the causes of the correction from May's highs. In addition, the rising prospect of a recession in the US is another factor in the weakness in the copper price.

The London Metals Exchange is the world's leading copper exchange. Inventories on the LME can provide indications of supply and demand. Falling inventories usually indicate strong demand, while rising inventories often indicate weak demand.

At the end of 2023, there were 167,300 tonnes of copper in LME warehouses. On August 19, inventories were 84.15% higher, at 308,075 tonnes. The sharp increase in LME inventories is weighing on the price of copper.

Critical support remains below the current price

After a nearly 25% decline, it is difficult to imagine copper continuing to have a long-term uptrend. However, the pattern of higher lows and higher highs remains firmly intact despite the recent low of $3.9210.

The 10-year chart shows that copper price has been trending up since hitting a low of $1.9725 in March 2020 when the global pandemic hit markets across all asset classes. Even though the recent decline was ugly, the uptrend remains firmly intact and there is a good chance that the price will make another higher low.

The compelling argument for copper – China, green energy, supply and demand

For the end of August 2024, the following convincing optimistic arguments speak for copper:

• The long-term technical trend remains up and the trend is always your best friend.
• Copper is a critical component of green energy initiatives, including electric vehicles and wind turbines.
• China will eventually emerge from its sluggish economic growth. As the situation in China improves, copper demand will likely rise and supplies will decline.
• The US dollar is the world's reserve currency and determines the price of copper. A weaker US dollar favors higher copper prices.
• The US Federal Reserve is likely to cut short-term interest rates in the coming months. Lower interest rates reduce the cost of copper inventories, which leads to higher prices.
• The split of the nuclear powers threatens the role of the US dollar as the world's most important currency. As China, Russia and their allies push for de-dollarization, the dollar's dominant global position could decline, leading to higher prices for copper and other commodities.

The drop to the $4 mark could be a golden buying opportunity in the copper market.

CPER is an ETF that tracks COMEX copper futures

The US Copper ETF product tracks the price of the red metal. At $26.10 per share, CPER had $168.06 million in assets under management. CPER trades an average of 138,720 shares daily and charges a management fee of about 1%.

The recent recovery in copper prices pushed the September futures price up 7.29%, from $3.9210 on August 7 to $4.2070 on August 20.

During the same period, CPER rose 6.76% from $24.70 to $26.37 per share. One downside to CPER is that copper trades 24 hours a day, while the CPER ETF is only available during U.S. market hours. CPER may miss highs or lows when the stock market is closed.

The case for higher copper prices remains compelling at the $4 per pound level. While it is virtually impossible to identify bottoms, the long-term uptrend in copper suggests that another higher low is likely. I would leave room for additions if copper prices make even lower lows in the coming days and weeks, but the odds are good that they make higher highs in the coming months and years.

Buying copper when prices are weak has been the optimal approach since the turn of the century. Although the price of copper has fluctuated, buying copper during price corrections has paid off for traders and investors with patience and perseverance for nearly a quarter century.