Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Chart Of The Day: Using Metals To Trade Both Sides Of Inflation (Part 1)

By (Pinchas Cohen/ 10, 2021 09:35AM ET
Chart Of The Day: Using Metals To Trade Both Sides Of Inflation (Part 1)
By (Pinchas Cohen/   |  Mar 10, 2021 09:35AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items

Recently, we've been discussing the current market debate regarding the potential for inflation to raise its ugly, or lovely, head—depending on how you interpret the phenomenon.

The positive outlook sees reflation as good for the economy, with rising prices fueling economic expansion, allowing companies to increase profits and ramp-up hiring and wages, thereby enabling consumers to spend more. This reading creates a virtuous, upward spiraling cycle of manageable gains. 

The negative view anticipates economic overheating, wherein the expansion becomes unmanageable and prices rise too quickly. In this scenario, with prices escalating ahead of corporate profitability and consumer buying power, ultimately the economy spirals lower.

Naturally, at this stage, one can't know which interpretation of the theme will prevail, but we can illustrate how to trade each version of the inflation narrative in order to hedge and ideally incur a profit. 

Today we'll consider the industrial metal copper, which would benefit from the reflation trade as economic expansion prevails. Tomorrow, we plan to write about platinum, the precious metal that usually gains when it's used as a hedge against rapidly rising inflation.

Copper Daily
Copper Daily

The red metal has enjoyed a 25% surge in just three weeks, from the low of Feb. 3 to the high of Feb. 25. It reached its highest level since Aug. 2011 and is now approximately 5% below its Feb. 14 all-time high.

That move broke the rising channel in which the contract was traded since the March low.

Obviously, when buying overtakes selling, it propels prices higher as stronger demand produces weaker supply. What's interesting in this case, however, is that the same traders appear to be playing both sides of the game.

When the balance tilted in favor of demand, the metal was able to change course and rise more quickly. If we’re right, the previous 25% is the first half of one move.

The flag is the range created when early bulls took profit, as they considered whether they'd gone too far. Note that the decline is much slower than the preceding advance.

That’s because traders appear to have been in agreement that prices should go higher. The congestion within the flag illustrates that consensus is gone.

Whereas the sellers were early bulls who wanted to preserve what they’d already gained, the goal of the later bulls was to profit in the same way the sellers had. So, the flag is falling because it's being pressured by profit taking. Still it’s persisting because all that selling is finding hungry new bulls, eagerly picking up every contract sold.

In technical analysis, it’s important to look at the entire picture, to find the order within the chaos, the method within the madness. Notice that the flag has been finding support above the earlier rising channel.

Also, note, the 50 DMA is realigning with the now faster rate of ascent, while the 100 DMA crossed above the bottom of the early rising channel for the first time.

Copper Futures Contract Specs

  • Contract Unit: 25,000 pounds
  • Price Quotation: dollars and cents per pound (therefore multiply each price change by 25,000 to arrive at the contract change value.

In other words:

  • Minimum Price Fluctuation: 0.0005 per pound = $12.50

Trading Strategies

Conservative traders should wait for the flag to complete, with an upside breakout, whose penetration would pierce the 4.2000 level, then return after the short squeeze is over, to retest the pattern’s integrity, whose persistent demand will send the price up in another wave.

Moderate traders would wait for the upside breakout to exceed 4.120, then would wait for a buying dip, if not evidence of support.

Aggressive traders could buy at will, provided they understand the dynamics and accept the risks. A trading plan is key.

Here’s an example:

Trade Sample

  • Entry: 4.0000
  • Stop-Loss: 3.9000
  • Risk: 0.1000 (X 25,000 = $2,500)
  • Target: 4.3000
  • Reward: 0.3000 (X 25,000 = $7,500)
  • Risk:Reward Ratio: 1:3

Author's Note: This is just a sample and it's not offered as the only way to approach this trade, whose interpretation may be wrong. We do not know the future but are merely weighing the evidence. We base our expectations on statistics, which occur over time. The more you trade the greater the chance you have to align with statistics. Therefore, in addition to analysis, money management is crucial. Your timing, budget and temperament will impact your overall trading. Till you learn how to customize a trading plan, gain experience by trading small,as a way to learn. If you’re here to make big bucks fast, you're statically guaranteed to lose all your money, then blame it on analysts and decide trading is gambling. Do both of us a favor and heed our advice.

Read part 2 here

Chart Of The Day: Using Metals To Trade Both Sides Of Inflation (Part 1)

Related Articles

Andy Hecht
Commodities: Sugar Gets Sweeter By Andy Hecht - May 07, 2021

This article was written exclusively for Investing.comA late February multi-year high and pullback Sugar has been rallying since Apr. 1 – A higher high in July futures A...

Peter Krauth
Silver Headed To $300 By Peter Krauth - May 06, 2021 11

I know this might sound ridiculous to some, but I think silver could reach $300. No, I haven’t lost my mind. After all, it’s a metal that’s known for massive rallies. You see, when...

Chart Of The Day: Using Metals To Trade Both Sides Of Inflation (Part 1)

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email