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Dec. 1, 2005
Short Copper
Copper has rallied
almost 30 cents since I cancelled our short
recommendation on November 2nd (only one month ago)......and
I am now ready to short it again. Picking a top
is probably the toughest trade there is in futures but as I
remain convinced Copper's initial downswing will be
mindboggling in its size and velocity, I believe the risk is
worth the potential reward.
If you follow any financial news
at all, you probably have recently seen stories about
a Chinese trader having shorted "enormous" quantities of
copper contracts for China on the London Metals Exchange (LME)
and that a short squeeze is now taking copper up sharply
into further record highs, the idea being that China is
having to buy back equally massive quantities of futures
contracts. How much they are short has been rumored to
be between 200,000 and 400,000 metric tonnes. This may sound
like a lot, but in reality, if you assume the larger number
is correct (which it easily may not be), this would still
only represent about 16,000 futures contracts, or 4% of the
total Copper contracts currently outstanding on the LME.
This is not a small position, but by no means would I give
it the sort of import the press has hyped it up to be.
My point is: Here is
a market that has been going up forever and has, in just the
last 4 days, gone straight up 20 cents a pound (see chart
below) as everybody is sure the Chinese are in big trouble
and having to buy, buy, buy!...To me, this reeks of a
totally artificial, and totally unsustainable, "blow off"
price move at the end of an extremely ripe bull market...
Maybe I'm wrong, but I think the next thing you'll see is an
absolute flame out, where copper maybe closes like it did
today---dead on its highs---then opens down big the next
morning and ends up dropping 30 or 40 cents in a matter of
days.
I took my first shot at this in
April when Copper was trading at $1.50 a pound....and was
dead wrong. Maybe I will be wrong again this time, but to
me, this is a bet that, sooner or later, has got to pay in a
big way....and the only way to be there when it happens is
to keep your money on the table....With all of
this in mind, I established new short positions going into
today's 9 cent higher close....and recommend you do the
same....Give me a call if you want to want to know more.
Thanks,
Bill Rhyne
800-578-1001
770-514-1993
Charts and numbers follow....
There are various ways to do this....One way
is with January put options.
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