Tuesday, August 9, 2011

Explaining illogical moves

When the dust settles after a big market correction there's always the search for "why" which inevitably leads to people pointing to examples of outliers and strange behaviour amongst issues. Your humble scribe pointed one out yesterday with the move gold put in last night. This morning, reader SB sent in a different one via this chart you see below:

The share price of Southern Copper (SCCO) as a ratio with the price of copper is the example, with the chart pointing to the big downmove and a low ratio we haven't seen since the fun'n'games of late '08. So is this a buying opportunity in SCCO? Yep, I think so but I'm biased, as I've owned it for what seems like forever. Mind you, it's never traded by your humble scribe and is there for the divis, so perhaps I don't care that much either way. 

If, however, the current U$4/lb line for copper doesn't hold and the metal gets cheaper quicktime, SCCO will likely feel the hit even harder than the metal's drop. That's the risk, but as I personally see copper moving up from here I think there's more potential reward right now.

dyodd, dudettes & dudes