3 Charts That Suggest Base Metals Are Headed Higher

When it comes to investing in the commodities market, most of the attention goes to precious metals such as gold. On the other hand, the commodities that are primarily bought and used for industrial purposes tend to be less lucrative due to their nature as key components for infrastructure projects. In this article, we'll take a look at three charts that span the industrial commodities sector and highlight how this relatively underfollowed area of the market could be worth adding to your portfolio.

One of the first charts that is commonly used for gauging the overall trend of the industrial goods sector is the Industrial Select Sector SPDR Fybd (XLI). With total net assets of $10.9 billion and 70 holdings from across aerospace and defense, industrial conglomerates, construction and engineering, trading companies and distributors, and building products industries, the fund offers traders a diverse look at global demand for industrial products and services.

As you can see below, XLI has been trading sharply higher so far in 2019. The sharp move higher following the sell-off that occurred at the end of 2018 has triggered a bullish crossover between the 50-day and 200-day moving averages known as a golden crossover. Followers of technical analysis will use the crossover and subsequent test of newfound support to mark the beginning of a long-term uptrend. From a risk management perspective, stop-loss orders will likely be placed below $72.43 in case of a sudden shift in fundamentals or market sentiment.

As the upward trend shown on the chart of XLI suggests, demand for industrial products is clearly on the rise. Many followers of commodities would use the strengthening of the broad industrial goods sector to suggest that copper would be a prime candidate to benefit from. The strengthening of copper prices in recent weeks would also suggest that the underlying copper mining companies would also be strong candidates for a move higher due to their direct exposure to the metal.

Taking a look at the chart of the Global X Copper Miners ETF (COPX), you can see that the strengthening position so far in 2019 has triggered a bullish crossover between its long-term moving averages. The bullish crossover and break beyond the resistance of a triangle pattern show that the bulls are in control of the momentum and that prices are likely poised to make a continued move higher. Stop losses will likely be placed below $21.34 in case of a sudden change of direction.

As discussed above, active traders who want to narrow their focus from the broad industrial sector may want to investigate an ETF such as COPX. Traders who want to further focus their attention may choose to analyze specific holdings such as Southern Copper Corporation (SCCO). The risk scales up as the focus narrows, but so does the potential reward.

Traders who were able to spot the breakout above the descending trendline in February have been able to make a gain of more than 33%. As the pattern below suggests, the move higher doesn't look it is near being over, and it could be the start of a long-term uptrend. The recent breakout will likely be used as a catalyst for a continued move higher, and stop losses will likely be placed below $37.73 in case of a sudden move to the downside.

The industrial sector doesn't get all that much attention due to the nature of the underlying commodities and businesses. However, as discussed in the paragraphs above, it could be perfect timing to increase exposure to this sector due to the lucrative risk/reward setups and clear long-term buy signals. 

At the time of writing, Casey Murphy did not own a position in any of the securities mentioned.