3 Copper Stocks The Bears Are About To Hit

The inflation trade is crowded. That’s Wall Street talk meaning that if everyone has the same idea, it can’t be a good one.

Investors have been getting into copper stocks as a way the hedge against inflation. If inflation rises, so will the value of copper and so will the value of these stocks.

This may be the case long term.

But in the short term, they're overextended. This will attract sellers who will knock the prices lower.

Freeport-McMoRan Inc. FCX has slammed into a wall of resistance around the $38 level.

Resistance is a large concentration of sellers who have gathered at the same price. At resistance levels, there is more supply than demand for the stock.

Stocks often trend lower after they hit resistance. This happened with FCX in late February and early March.

There’s a good chance it happens again.

Southern Copper Corporation SCCO is overbought.

Many computerized trading programs are based on probability theory and statistics. And according to them, all trading should be with 95% of two standard deviations of the average.

The red line on the following chart is two standard deviations above the recent 20-day average price. The stock is currently trading above this important threshold.

This will draw sellers into the market as they will be anticipating a reversion to the mean. In this case, that's a move lower.

BHP Group BHP has also exceeded this threshold. The computerized trading programs will target this stock as well. They will be expecting a reversion back into the average price range and could sell or short BHP ahead of this.