Copper is up for the sixth of seven days. It's the longest winning streak for the red metal in seven months, which has hit an 8-year high while adding over 7% of value.
Investment banks have been forecasting a long-term advance for commodities, as Wall Street bets on a robust economic recovery in 2021—after the one expected last year fizzled. Investors hold commodities in their portfolios as a hedge against rising inflation and a weak dollar.
JPMorgan Chase analyst Marko Kolanovic predicts a new supercycle—a very long uptrend—for copper, as the Biden Administration’s green initiative should boost metals in particular which are necessary for renewable energy infrastructure, batteries and electric vehicles.
The combination of rising inflation and vaccine-induced optimism from falling infection rates pushed hedge fund bullish bets on commodities to the highest in a decade. JPMorgan Chase expects a fifth supercycle after the fourth in 100 years peaked in 2008, after a 12-year acceleration.
Economic recovery aided by the most accommodative fiscal and monetary policies in history, compounded by the Democrat’s fight against climate change provide additional reasons for the bullish outlook on metals and other commodities.
All of which is a recipe for copper to begin another supercycle.
The red metal's week-long rally blew out a H&S top, turning what would have a been a bearish pattern into a reversal slingshot in the opposite direction amid a short squeeze and triggered longs.
The MACD’s short MA crossed over the long MA, when recent prices sent moving averages back up. The RSI showed that momentum rose higher than expected during the commodity's downtrend, and the more sensitive momentum-based ROC bottomed.
Measuring the narrowest part of the pattern, top to bottom, provides a target of 3.9858, adding the pattern height of 0.2340 to the 3.7340 point of breakout.
Trading Strategy — Long Position Setup
Conservative traders should wait for the price to clear a 3% penetration to 3.8460, while remaining above the 3.7340 for at least three days, to filter out a bull trap, then dip amid profit-taking, to find new demand by the pattern.
Moderate traders would be content with a 2% filter to 3.8086, minimizing the risk of whipsaw, and a return move for a better entry, if not for confirmation of the uptrend.
Aggressive traders, who already received the minimum 1%, 1-day penetration—sufficient for this risk level—may enter a position as soon as they have a plan that addresses both risk and reward.
Note on contract specs: the price of copper is quoted per pound, while a contract unit is 25,000 pounds. So, the impact of a move is times 25,000 in your account. That means a 1-cent move is worth $250.
Trade Sample
- Entry: $3.7300
- Stop-Loss: $3.7000
- Risk: $0.03
- Target: $3.9800
- Reward: $0.25
- Risk:Reward Ratio: 1:8
Author's Note: This is just a sample. Don’t comment on it because then I'll know you didn’t read the full article, and that doesn’t make you look smart. Don’t take the trade if you didn’t understand the risks. I'm not a fortune teller and can't know which way the market will head next. As well, your budget, timing and temperament will impact the results of your trade. Write a plan that complements them. If you don’t yet know how to do that take small trades, until you acquire the skill to trade appropriately. Happy trading.