Shorting is not my thing, but copper has a lot of things lining up to make a short a reasonable trade. This came on my radar when looking at Moore's Research which states that 14 of the past 15 years, shorting copper April 25 to June 15 gives an average profit of $3991 per contract.
Copper is most heavily consumed by the construction industry. Inventories are accumulated during the winter offseason and then sold into the retail market as weather improves. Thus, prices tend to decline from April into June as stocks are liquidated. When you throw in a global depression, I think the outlook for copper should not be very good.
Seasonally speaking, May is by far the worst month for copper the entire year.
Copper has already had a pretty good run. Today is day 26 of this cycle. This lines up well with Moore's dates to begin a decline. If we were at a bottom of a cycle, I would not give this trade a second look, but it gives me confidence when Moore's dates line up with the cycles and the seasonals.
A copper futures contract is quite large at 25,000 lbs. Yes, that is 12.5 tons. Yuge! Every penny copper trades is worth $250, so a price move from $2.35 to $2.34 is worth $250. The margin on copper is $4,125.
My recommendation would be to short copper at a swing high, probably at 2.35 perhaps as early as tomorrow. The stop on copper would be just above the swing, which if that happens tomorrow would be at $2.40. You would be risking a dime, or $2500 if you shorted at $2.35. The average drop from this short according to Moore's is 16 cents. That would take copper back down to $2.19.
This has been a rough week so far and it's only Tuesday. The best time to trade is after it feels like somebody worked you over good with a stick, so since that is how most of us feel it's time to look for something that can help us feel better. Most of you know how much I hate trading the ags, but soybeans look to have the qualities of a sound trade.
I won't post an optimism index chart as it just shows extreme pessimism and soybeans always show extreme pessimism. I do think it is good to see that we are in the timeframe when soybeans typically appreciate, mostly from weather concerns.
Looking at the weekly soybean chart, you can see that the stochastics and RSI are both oversold. These conditions can lead to strong rallies.
Looking at the daily November bean chart you can see a gap that was left back in early March. It would take a rally to $9.03 to fill that gap which is roughly 55 cents away. Today's trade left a bullish hammer candle. The hammer is an exhaustion candle which indicates the market ran out of sellers and were routed by buyers into the close.
The margin on a soybean futures contract is $1815 for 5000 bushels. Every penny soybeans trade is worth $50. If you are able to buy the November soybean contract a 8.48, I expect beans will fill the gap and net you 55 cents on the trade. .55 X $5000 = $2,750. Let me know if I can get an order started for you.
We know all the negatives that the energy market face. Demand destruction brought on by an economy which was halted by a virus and a glut of oil and gas brought on by a price war by the Saudis and Russians. Should gas and oil be valued near zero?
The markets are always forward looking. It is why the stock market has rallied 25% off the March 23 lows despite the same shutdown which also killed energy prices. We are just a tariff announcement by Trump away from having an explosive price move in oil and gasoline.
Despite the negatives, gasoline has some positives for trading purposes:
1. A swing Low
2. The price of gas has closed above the 10 DMA
3. The 10 DMA has turned higher.
4. There is a gap to fill at 1.37
5. The 200 day moving average will be in that same area to fill the gap in a few weeks. This is just a revision to the mean trade meaning price should revert to the average...… the average being the 200 day moving average.
There are at least three things we know. We know the virus is not as active as it gets warmer outside. We know Trump will probably lift the social restrictions we currently have in most places. And we know that after being cooped up a month, people are going to get into their cars and drive someplace. Moore's Research points out that 12 out of 15 years, gas prices improve in April for summer driving season starting April 17 and concluding May 5.
I would think the usual seasonal tendencies by Unleaded Gasoline will be delayed a bit further.
Weekly oscillators are extremely oversold. This happens at intermediate cycle lows.
The bad news is that margin requirements for gasoline futures has increased now to $10,650. This is not what you are risking but it is what you must have to trade it. The contract size is a 42,000 gallon tractor trailer size. Every cent gasoline moves is worth $420.
The trade I would propose you to consider is to buy the May gasoline contract at 28 cents. Hopefully the price would rally to fill the gap that was left back on March 6. $1.37 - .68 = 69 cents X $420 = $28,980. This is why the gasoline margins have gotten so large. It dropped about that much in 3 days. I would propose a stop at 60 cents. You would be risking 8 cents X $420 = $3,360. Let me know if you want to do this trade.
Recommended entry or exit prices may not necessarily be reflected on the track record. Markets can change quickly resulting in stops being moved or profit levels changed based on new information. Brokerage customers are the recipients of these potential price adjustments made after initial recommendations.