The Copper Trade With a Golden Track Record
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.
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.