Commodity Trader's Almanac 2O11

112

COPPER STARTS TO BUILD A

BULLISH FOUNDATION

Copper prices tend to form seasonal bottoms

during the month of December (page 149).

Traders can look to go long on or about

December 14 and hold until about February 23.

This trade in the last 38-year history has worked

26 times, for a success rate of 68.4%.

Cumulative profit is a whopping $64,463.

One-third of that profit came from 2007, as the

cyclical boom in the commodity market mag -

nified that seasonal price move. However, this

trade has produced other big gains per single

contract, such as an $8,213 gain in 2003, and

even back in 1973, it registered another sub -

stantial $9,475 gain. The biggest loss was for

$5,000 back in 2006. These numbers show this

trade can produce big wins and big losses.

The futures contract does have electronic

access, and there are options on this commodity.

But due to the potential volatility and thinness of

the market, options are a consideration but are

also not as actively traded as other commodities.

Therefore, let’s introduce a stock that mirrors the

price moves of copper without the excess

volatility. The chart below shows BHP Billiton’s

(BHP) prices overlaid on copper’s. This company

mines copper, silver, lead, and gold in Australia,

Chile, Peru, and the United States.

Notice the price correlation to copper. The

bottom line on the graph illustrates copper’s

average seasonal price moves, which BHP tracks

rather closely ...