Picking Up The PICK ETF On The Dip (BATS:PICK) #NewsETFs

On May 20, 2024, copper, the leading base metal, rose to a record peak at nearly $5.20 per pound. In a May 23 Seeking Alpha article on the iShares MSCI Global Metals & Mining Producers ETF (BATS:PICK), I concluded:

iShares MSCI Global Metals & Mining Producers ETF’s technical resistance is at the January 2023 $47.70 high, the April 2022 $53 peak, and the February 2012 $56 record high. Mining companies often outperform the metals on the upside because of the mining business’s leverage. If base metals prices continue to climb, PICK could be on a path to a record high over the coming months and years.

PICK was trading at $44.39 on May 23, and the ETF has declined alongside copper and base metals prices over the past weeks. Time will tell if the current correction is temporary and will find a bottom or if it will take prices and mining stocks to even lower lows over the coming weeks and months. Meanwhile, base metals face opposing supply and demand fundamental pressures, as the future demand will likely increase because of green energy initiatives, but China’s economy has weighed on the sector.

Copper and base metals prices have plunged

After reaching a $5.1985 per pound high in May 2024, COMEX copper futures (HG1:COM) ran out of upside steam, igniting an implosive that took the price below the $4 level.

The three-year chart highlights the 24.6% plunge that took copper futures to their latest $3.9175 per pound low on August 7.

The three-month LME copper forwards fell 21.5% from a record $11,104.50 high on May 20 to $8,715 per ton on August 5. Copper and all base metals prices have declined since the end of Q2:

• COMEX copper futures settled Q2 at $4.3950 and were 10.1% lower at $3.9510 per pound on August 8.
• LME three-month copper forwards settled Q2 at $9,599 and were 8.64% lower at $8,769.50 per ton on July 29.
• LME three-month aluminum forwards settled Q2 at $2,524.50 and were 9.37% lower at $2,288.00 per ton on July 29.
• LME three-month nickel forwards settled Q2 at $17,291 and were 5.75% lower at $16,296 per ton on July 29.
• LME three-month lead forwards settled Q2 at $2,224 and were 11.53% lower at $1,967.50 per ton on July 29.
• LME three-month zinc forwards settled Q2 at $2,937.50 and were 13.99% lower at $2,526.67 per ton on July 29.
• LME three-month tin forwards settled Q2 at $32,739 and were 8.39% lower at $29,991 per ton on July 29.

Since the end of the second quarter, copper led the nonferrous metals lower.

Copper remains in a long-term bull market and leads the nonferrous metals trading on the LME

Copper sets the tone for the metals trading on the LME, which are infrastructure building blocks and increasingly energy commodities as the world addresses climate change through alternative battery-related fuel sources.

While copper’s price action since the May high has been bearish, the long-term trend remains higher.

The long-term COMEX copper futures chart since 1971 shows a bullish trend of higher lows and higher highs. Even though copper fell through the $4 per pound level, critical technical support is at the July 2022 $3.15 per pound low. Copper has more downside potential, but the odds continue favoring another higher low and reversal back to a medium and short-term bullish trend.

The fundamentals remain bullish, but China is a problem as inventories grow

Goldman Sachs has called copper “the new oil,” as decarbonization depends on the red nonferrous metal. Over the coming years, supplies will struggle to keep pace with the growing demand. Since copper leads the base metals lower and higher, a copper reversal would likely take aluminum, nickel, lead, zinc, and tin prices higher.

While the long-term fundamentals remain bullish, China has been problematic as the weak economy has not supported the demand for copper and base metals. LME inventory data since the end of Q2 reflects Chinese weakness as most stockpiles have increased:

• Copper stocks have moved 63.6% higher from 180,125 tons at the end of Q2 to 294,750 tons on August 7.
• Aluminum stocks have moved 10.95% lower from 1,026,925 tons at the end of Q2 to 914,450 tons on August 7.
• Nickel stocks have moved 16.45% higher from 95,034 tons at the end of Q2 to 110,670 tons on August 7.
• Lead stocks have moved 2.65% lower from 224,375 tons at the end of Q2 to 218,425 tons on August 7.
• Zinc stocks have moved 6.75% lower from 262,075 tons at the end of Q2 to 244,375 tons on August 7.
• Tin stocks have moved 4.19% lower from 4,770 tons at the end of Q2 to 4,570 tons on August 7.

While aluminum, lead, zinc, and tin inventories have declined, copper and nickel stockpiles have increased, with copper experiencing the most significant rise.

Inventory data can be misleading as market participants often move metal into and out of LME warehouses to influence prices. However, the significant increase in copper stocks has weighed on the red metal’s price since the May 2024 high.

The PICK ETF is consolidating with a bullish bias

Shares of nonferrous metal producers move higher and lower with the metal prices. The top holdings of the iShares MSCI Global Metals & Mining Producers ETF product include:

As the chart highlights, PICK owns shares of the A-list of base metals producing companies.

The chart shows that PICK has significant exposure to leading mining companies by market cap.

At $37.37 per share, PICK had $935.03 million in assets under management. PICK trades an average of 359,153 shares daily and charges a 0.39% management fee.

Dividends are attractive, and the potential for higher base metal prices favors the miners

PICK’s dividend yield history has been significantly higher than the average stock market yield

The chart shows the above market dividend history. Meanwhile, PICK’s Seeking Alpha’s ETF grades are mixed, given the recent price performance of the metals and the mining stocks.

Given the price action, momentum receives a failing grade, while expenses and dividends have been stable to slightly lower. PICK is a liquid product, receiving a B+ for its ease of trading and investing.

The trend is always your best friend in markets, and the three-month decline from an “A” to an “F” reflects the correction in the metals and mining shares.

The chart illustrated the 22.2% decline from $46.40 on May 21 to $36.11 on August 5. Meanwhile, like copper, PICK’s long-term bullish trend remains intact.

The chart shows PICK’s bullish trend since the 2016 low. PICK made a higher low in March 2020 as the global pandemic gripped markets across all asset classes. Critical technical support is at the July 2022 $31.86 low.

The current base metals’ correction is ugly, but it has not ended copper’s multiyear bull market, and supply and demand fundamentals continue to favor another higher low. I favor the PICK ETF as the mining shares will follow the metals over the coming months and years. As a diversified base metals ETF, PICK is not tied to any single producer and will benefit from higher prices when the sector finds a bottom and turns to the upside. While I am bullish on PICK’s prospects, the short and medium-term trends remain bearish, so I will leave room to add on further declines.