GO
Loading...

The Copper Trade With a Golden Track Record

Macduff Everton | Image Bank | Getty Images

Here's a question: If in each of the last 40 years, you had bought the year's May copper contract on Jan. 14, and exited the trade on March 3, how many times would you have made money?

The answer is 32 — meaning that this trade has enjoyed an 80 percent success rate. Not too bad!

Is this the holy grail? No, it's just another tool in the tool chest. So let's consider all aspects of the market.

Why does copper have bullish bias around this time of year?

Because China starts buying, and the construction market starts to move her in the states. This year we have the additional catalyst of JPMorgan Chase starting a copper ETF that would be backed by 61,800 metric tons of actual metal. This could be bullish as speculators get in.

Right out of the gates, the copper market was able to rally tremendously to kick off the New Year, and since then we have seen slight profit-taking.

Thursday's earnings out of Alcoa are very encouraging to the bull camp, as we saw a strong outlook that includes a recovering Asian demand picture.

The market has consolidated above a 50 percent retracement over the last two sessions, and now with Alcoa out of the way, I expect bulls to find this market very attractive.

A close above $3.714 will be a bullish signal. A close below $3.650 to $3.640 will be bearish, but only a close below $3.620 to $3.615 will signal a reversal.

Lastly, with the 50-day and 200-day moving average at $3.586 and $3.579, respectively, we are seeing a bullish cross.

So what's my trade?

Buy May copper at $3.690, with a sell stop at $3.630 and a target of $3.810. This trade risks $1,500 to make a potential $3,000.

(Read More: 10 Things You Need to Know to Trade Futures)

Watch "Futures Now" Tuesdays & Thursdays 1 p.m. ET exclusively on FuturesNow.CNBC.com!

Like us on Facebook! Facebook.com/CNBCFuturesNow

Follow us on Twitter @CNBCFuturesNow

Contact Futures Now

  • Showtimes

    Watch Futures Now Tuesdays & Thursdays 1p ET exclusively on cnbc.com!

Sponsor Links

  • CME Group brings buyers and sellers together through its CME Globex electronic trading platform and trading facilities in New York and Chicago.

  • Take your trading to the next level with a platform that lets you trade stocks, options, futures and forex all in one place with no platform or data with no trade minimums. Open an account with TD Ameritrade and get up to $600 cash.