Seasonal Trading with Copper
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 trading 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 44-year history, it has worked 28 times for a success rate of 63.6%.
This trade produced gains in ten of eleven years from 2001 to 2011, but has been down four years straight. Last year’s loss could have been avoided with a few more days of holding the long position into early March when copper briskly rebounded.
In the following chart, the front-month copper futures weekly price moves and seasonal pattern are plotted. Typical seasonal strength in copper is highlighted in yellow.
Ahead of Election Day, copper was already beginning to make a move and once Trump was declared the winner, it rocketed higher on potentially higher domestic growth and infrastructure spending.
But, even at current levels, copper is still well off its highs from 2011 near $4.50 a pound. The move higher could continue especially if Trump is successful in his first 100 days in office.
One option to take advantage of copper’s seasonal move is iPath Bloomberg Copper TR Sub-Index ETN (JJC). ETNs differ from ETFs.
An ETN is debt whose current value is based upon an index return. In the case of JJC, it is linked to the Bloomberg Copper Total Return Index, which represents the potential return of an unleveraged investment in copper futures.
JJC could be considered on dips below $30.00. Once purchased a stop loss of $27.50 is suggested.
Another way to gain exposure to copper and its seasonally strong period is through the companies that mine and produce copper.
Global X Copper Miners ETF (COPX) holds shares of some of the largest copper miners and producers from across the globe. COPX could be considered on dips below $21.50. If purchased, an initial stop loss of $19.40 is suggested.
By Jeffrey Hirsch, Editor of Stock Trader’s Almanac