Copper has a tendency to make a major seasonal bottom in December and then a tendency to post major seasonal peaks in April or May, explains seasonal timing expert Jeffrey Hirsch, editor of Stock Trader’s Almanac.
This pattern could be due to the buildup of inventories by miners and manufacturers as the building construction season begins in late-winter to early-spring. Automakers are also preparing for the new car model year that often begins in mid- to late-summer.
Traders can look to go long a May futures contract on or about December 14 and hold until about February 23. In this trade’s 43-year history, it has worked 28 times for a success rate of 65.1%. This trade has produced gains in ten of the last fourteen years.
Let’s consider a stock that mirrors the price moves of copper. Southern Copper (SCCO) mines, explores, smelts, and refines copper and other minerals primarily in South America.
SCCO revenues and earnings have fallen alongside the price of copper and other metals, but it has managed to remain profitable and maintain a small dividend.
Since peaking in May, copper and SCCO are both down substantially. Copper has fallen by roughly a third while SCCO is off nearly 25% over the past six months.
Tepid global growth and a strong US dollar are two of the biggest drivers behind this year’s dive in copper prices. There are a few signs suggesting global growth could accelerate, namely substantial stimulus in Europe and Japan. And the dollar index looks like it has topped out again.
Copper appears to be forming a base just above $2, a key psychological support level. All of this improves the likelihood of another seasonal rally by copper and potentially by the companies that mine it.
SCCO could be bought on dips below $25. If purchased, a stop loss of $21.75 is suggested.
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