COPX: Playing Copper’s Comeback (NYSEARCA:COPX)

The commodity train steams ahead. On Friday, the Invesco DB Commodity Index Tracking Fund (DBC) notched yet another fresh multi-year high. That move coming on a weekly basis makes the technical breakout all the more important. Copper futures have not done so well compared to oil, natural gas, and coal. Even many of the agricultural commodities beat copper on a one-year performance view.

1-Year Commodity Performances: Copper Has Been Soft

“Dr. Copper” usually correlates closely with crude oil futures, but that relationship has broken down somewhat of late. I expect some mean reversion here, with copper prices rallying vs WTI over the coming months.

Is Copper Due For A Catch-Up to Crude Oil?

Still, copper has bounced recently. China’s re-opening following its disastrous zero-Covid policy is a significant current tailwind. The long-term technical chart shows copper hanging around its all-time highs. The bulls want to see a clear breakout above the $5 mark before getting too bullish.

Copper Futures: Holding Near All-Time Highs

Playing the Miners

Maybe the better way to play a bullish thesis on copper futures is to the copper miners. The Global X Copper Miners ETF (NYSEARCA:COPX) seeks to provide investment results that correspond to the price and yield performance, before fees and expenses, of the Solactive Global Copper Miners Total Return Index, according to Global X ETFs. The fund has 41 holdings with an expense ratio of 0.65%. Traders will like the tight average bid/ask spread of 0.13%.

COPX Holdings

The largest positions in COPX are foreign stocks, but Southern Copper (SCCO) and Freeport-McMoRan (FCX) are large domestic holdings. Not surprisingly, the ETF is 32% comprised of Canadian stocks followed by 12% from Australia. Just 9% of COPX is made up of domestic names, according to the ETF’s Fact Sheet.

The Technical Take

COPX looks strong from a long-term perspective. I am bullish looking out several years based on the move above $30 in late 2020 along with several successful tests of the $33 level over the last year. There is a bearish double-top feature at $47 – bulls want to see this level breached before they get too aggressive.

COPX: Long-Term Chart Shows Healthy Support

Near-term, copper futures tend to do well from mid-June through July, according to EquityClock, so there could be a short-term opportunity right now, too.

Copper Futures: Seasonality Suggests a Summer Rally

Whenever I look at commodity funds and ETFs, I compare the ETF to the underlying commodity. In this case, COPX tracks copper futures remarkably well. So, if you look for copper exposure without having to own the futures, COPX is a good proxy.

Copper Miners Track Copper Futures Well

On the valuation front, copper companies’ forward P/E is just 10.5, according to data from Ed Yardeni. That is cheap vs history. Moreover, the P/E is low relative to growth expectations as seen in the historical chart of its PEG ratio.

Attractive Copper Company Valuations

The Bottom Line

I am bullish on copper miners over the intermediate- to long-term. While copper has underperformed crude oil, I expect bullish mean reversion there. COPX is a great way to play it since the ETF has a tight correlation to copper futures. Copper companies also feature compelling earnings valuations.