US Housing And A Copper Rally

As a trader would know, when you lose confidence in a trade it is very hard to get back on board in the same trade, however we have learnt that confidence when it rebounds usually rebounds to levels from whence it came. The problem is that we do not have any timing on when this can occur. For us at the moment it is important just to see that investors are slowly coming back to the market and this is confirmed by the recent positive spate of housing data from the US. There are three main components of the sector we like to follow. The first is Building Permits, which is the amount of permits that are granted to people looking to build.  Over the last 12 months this is up 29.8%. The second is actual Building Starts; this tells us that people are confident of the market and the ability to service any debt. This is up 41.9%. Then finally, New Home Sales, this is an annualized piece of data that shows the number of new single-family homes that where sold in the prior month.  This is up 10.9%. So when you can combine all the sets of data, and all look positive, you can be confident that people are feeling better about the market and willing to back their view. Also, if housing prices move higher people have more equity, hence their propensity to spend increases thereby lifting the whole economy. So if the housing sector is showing buoyant signs so toos hould our feeling about the economy and as a result demand for copper. How does this confidence affect the copper market?

Apart from general confidence and home equity rising, of particular interest to us when viewing the copper market are the Building Permits and Housing Starts.  Permits allow us to gauge the potential forward purchases of copper and Starts tells us whether the demand is acute. Seeing Starts up by 41.9% is a  really positive sign. Although we are coming from a low base, the fact that we have demand and it is growing is positive. About 200kg of copper is used in the average family home so news like this helps to underpin the copper price. For example, 860k new home building permits potentially sees demand for 173 200 tonnes of copper just for the housing sector. Current LME inventors stand at 240k so it will not take to much effort from other sectors before we start see inventory draws. Add to this demand the potential expansion /modernization policies coming from the new guard in China, and the decreased production and lack of expansion in the mining sector, and you have a recipe for the price of copper to go hard in Q1. Here is where we see potential. Whilst the market will slip into seasonal holiday trading keep an eye on the price action for the red metal. It will likely do little until the New Year, however if we continue to get more upbeat economic reads and a positive outcome from fiscal cliff negotiations then we can see the move start a little earlier than anticipated. Remember during the seasonal breaks we can see some pretty good moves, as volumes are low.  So what does the technical picture look like?