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Thursday, May 20, 2010

COPPER IS NOW ON THE CRASH LIST

After a stunning decline of 60 cents in just a few weeks, we are placing copper on "crash alert."

Long-time readers know we monitor the price of copper for a "real time" reading of global economic health. Copper is a major ingredient in cars, power lines, electronics, and housing… so its price tends to rise and fall with economic activity.

In late April, we highlighted the "bear case" for copper. Several mining insiders are worried about a huge supply overhang… and if the brilliant Jim Chanos is right about a China slowdown, copper will crash.

As you can see from today's chart, copper has suffered an incredible drop in the past month. This decline from $3.60 per pound to $3 per pound has taken the metal close to its February low around $2.90. If this area gives way, one has to be worried about China, the global economy, and just about every asset on earth. One would also expect our bearish note on copper producer Freeport-McMoRan to be hugely profitable. Our "bonus chart" (the second chart below) shows this large miner is plunging.

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