Copper Turning Red Hot
Atualizado
When China sneezes, commodities catch cold. Developments in China over the last quarter around zero COVID have paved the path to re-opening, which has a substantial impact on lives, livelihoods, and commodity prices.
China re-opening plus a raft of measures to spur the Chinese real estate sector sets the backdrop for copper prices to be bullish. This case study illustrates that a long position in CME Copper Futures with an entry at 3.95 and a target of 4.326 supported by a stop loss at 3.614 would yield a reward to risk ratio of 1.2.
On 14th November, we published – Copper Melting?, in which we were short term bearish while staying long term bullish on Copper. Our call then turned out correct with prices tanking in November but given the large-scale policy shifts in China now, we believe prices are well supported and set to rise.
RECOVERY FROM COVID LOCKDOWNS
Bounce-back from Covid lockdowns is visibly observed in various China-centric asset classes and currency. The chart below shows that since last September, Iron Ore has spiked 19% & Copper is up 12% buoyed by real estate recovery.
COVID-19 STILL LINGERS THREE YEARS ON
It is 2023, but COVID-19 still lingers. Covid lockdown hurts. Weak growth and stunted consumer confidence is evident from the chart below. Consumer confidence is at its lowest in 10 years. Based on data compiled by Bloomberg, rebound in subway traffic in key cities suggests that infections might have peaked. While the situation is still challenging for many, conditions in China might have passed peak Covid, suggesting shift in sentiments for the better.
MEASURES TO HELP CHINESE REAL ESTATE SECTOR
In addressing sagging consumer confidence and struggling real estate market, Beijing has embarked on pro-growth policy stance with accelerated reopening plans, plus a range of support measures for the real estate sector.
The measures to boost property market include (1) easing of lending restrictions, (2) lowering of mortgage rates, (3) capping real estate brokerage commissions, (4) dialing back on “three red-lines” lending policy for banks, (5) reducing down payment ratios for first time buyers, (6) removing minimum lending rates for first time purchases, (7) resuming approvals for private equity funds to raise money to invest in residential real estate, and, (8) strengthening of “too-big-to-fail” property developers.
Phased rollout of these measures is starting to have a positive impact. Since lows touched in November, Bloomberg Intelligence (BI) China Real Estate Developers Index is up 62%.
IRON ORE AND COPPER ARE AMONG THE FIRST TO BENEFIT FROM SUPPORT MEASURES
A booming real estate sector directly benefits Iron Ore and Copper. Sea-borne Iron Ore - majority of which is imported into China has been buoyant and is anticipated to rebound to 1130/TON this quarter according to Citi. Over the past month, iron ore prices have also moved up with reopening hopes boosting sentiment.
Bloomberg reported late last week that China plans to tighten the supervision on iron ore pricing to curtail speculations, the National Development and Reform Commission said in a statement on its WeChat page.
The Bullish sentiment in the real estate sector is showing up in buoyant copper prices. Unfettered by regulatory actions on price rise, copper has stayed more resilient than iron ore highlighting its relative strength.
SPECIFIC EQUITY MARKET SECTOR INDICES INDICATING MARKET BOUYANCY
Shares of mainland Chinese property developers shot up last week on talks that the authorities plan to extend supportive measures for “good-quality developers”.
The chart above shows a bullish cup and handle formation on the Shanghai Stock Exchange (SSE) Real Estate Index that points to an imminent recovery in the sector. SSE Real Estate Index spiked 21% since November 1st while the SSE Transportation Index (chart below) has climbed just 3.6% during the same period.
SIGNS OF BULLISHNESS IN COPPER TECHNICAL SIGNALS
Copper’s short-term moving average is approaching the long-term moving average. A cross could point to the start of a rally.
Copper’s Bollinger bands have started to narrow pointing to a narrowing range which suggests that a breakout from the range.
Copper prices cooled off in November before recovering, this price action also displays a bullish cup and handle formation as prices have remained range-bound post-recovery. Prices hovering at these levels despite softer volumes suggests that prices have found support.
INSIGHTS IMPLIED FROM OPEN INTEREST AND OPTIONS MARKETS POINTS TO EARLY SIGNS OF BULLISHNESS
Based on the Commitment of Traders Report, over the past 12 weeks, funds, institutional investors, and managed money have reduced their net short positions in copper futures by a striking 71%. Meanwhile, during the same period, small speculators while individually small but collectively non-trivial have shifted from net short positions of -1,004 lots to net long of +4,838 lots.
The put-call ratio on CME Copper Options is 0.57, a sign that participants are bullish on the prospects of copper price.
TRADE SET-UP
Each long position in micro copper futures (February 2023) provides exposure to 2,500 pounds of copper.
Entry: 3.950
Target: 4.326
Stop Loss: 3.614
Reward/Risk Ratio: 1.20
Profit at Target: $940
Loss at Stop Loss: $840
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/gopro/
DISCLAIMER
Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
This material has been published for general education and circulation only. It does not offer or solicit to buy or sell and does not address specific investment or risk management objectives, financial situation, or particular needs of any person.
Advice should be sought from a financial advisor regarding the suitability of any investment or risk management product before investing or adopting any investment or hedging strategies. Past performance is not indicative of future performance.
All examples used in this workshop are hypothetical and are used for explanation purposes only. Contents in this material is not investment advice and/or may or may not be the results of actual market experience.
Mint Finance does not endorse or shall not be liable for the content of information provided by third parties. Use of and/or reliance on such information is entirely at the reader’s own risk.
These materials are not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject Mint Finance to any registration or licensing requirement.
China re-opening plus a raft of measures to spur the Chinese real estate sector sets the backdrop for copper prices to be bullish. This case study illustrates that a long position in CME Copper Futures with an entry at 3.95 and a target of 4.326 supported by a stop loss at 3.614 would yield a reward to risk ratio of 1.2.
On 14th November, we published – Copper Melting?, in which we were short term bearish while staying long term bullish on Copper. Our call then turned out correct with prices tanking in November but given the large-scale policy shifts in China now, we believe prices are well supported and set to rise.
RECOVERY FROM COVID LOCKDOWNS
Bounce-back from Covid lockdowns is visibly observed in various China-centric asset classes and currency. The chart below shows that since last September, Iron Ore has spiked 19% & Copper is up 12% buoyed by real estate recovery.
COVID-19 STILL LINGERS THREE YEARS ON
It is 2023, but COVID-19 still lingers. Covid lockdown hurts. Weak growth and stunted consumer confidence is evident from the chart below. Consumer confidence is at its lowest in 10 years. Based on data compiled by Bloomberg, rebound in subway traffic in key cities suggests that infections might have peaked. While the situation is still challenging for many, conditions in China might have passed peak Covid, suggesting shift in sentiments for the better.
MEASURES TO HELP CHINESE REAL ESTATE SECTOR
In addressing sagging consumer confidence and struggling real estate market, Beijing has embarked on pro-growth policy stance with accelerated reopening plans, plus a range of support measures for the real estate sector.
The measures to boost property market include (1) easing of lending restrictions, (2) lowering of mortgage rates, (3) capping real estate brokerage commissions, (4) dialing back on “three red-lines” lending policy for banks, (5) reducing down payment ratios for first time buyers, (6) removing minimum lending rates for first time purchases, (7) resuming approvals for private equity funds to raise money to invest in residential real estate, and, (8) strengthening of “too-big-to-fail” property developers.
Phased rollout of these measures is starting to have a positive impact. Since lows touched in November, Bloomberg Intelligence (BI) China Real Estate Developers Index is up 62%.
IRON ORE AND COPPER ARE AMONG THE FIRST TO BENEFIT FROM SUPPORT MEASURES
A booming real estate sector directly benefits Iron Ore and Copper. Sea-borne Iron Ore - majority of which is imported into China has been buoyant and is anticipated to rebound to 1130/TON this quarter according to Citi. Over the past month, iron ore prices have also moved up with reopening hopes boosting sentiment.
Bloomberg reported late last week that China plans to tighten the supervision on iron ore pricing to curtail speculations, the National Development and Reform Commission said in a statement on its WeChat page.
The Bullish sentiment in the real estate sector is showing up in buoyant copper prices. Unfettered by regulatory actions on price rise, copper has stayed more resilient than iron ore highlighting its relative strength.
SPECIFIC EQUITY MARKET SECTOR INDICES INDICATING MARKET BOUYANCY
Shares of mainland Chinese property developers shot up last week on talks that the authorities plan to extend supportive measures for “good-quality developers”.
The chart above shows a bullish cup and handle formation on the Shanghai Stock Exchange (SSE) Real Estate Index that points to an imminent recovery in the sector. SSE Real Estate Index spiked 21% since November 1st while the SSE Transportation Index (chart below) has climbed just 3.6% during the same period.
SIGNS OF BULLISHNESS IN COPPER TECHNICAL SIGNALS
Copper’s short-term moving average is approaching the long-term moving average. A cross could point to the start of a rally.
Copper’s Bollinger bands have started to narrow pointing to a narrowing range which suggests that a breakout from the range.
Copper prices cooled off in November before recovering, this price action also displays a bullish cup and handle formation as prices have remained range-bound post-recovery. Prices hovering at these levels despite softer volumes suggests that prices have found support.
INSIGHTS IMPLIED FROM OPEN INTEREST AND OPTIONS MARKETS POINTS TO EARLY SIGNS OF BULLISHNESS
Based on the Commitment of Traders Report, over the past 12 weeks, funds, institutional investors, and managed money have reduced their net short positions in copper futures by a striking 71%. Meanwhile, during the same period, small speculators while individually small but collectively non-trivial have shifted from net short positions of -1,004 lots to net long of +4,838 lots.
The put-call ratio on CME Copper Options is 0.57, a sign that participants are bullish on the prospects of copper price.
TRADE SET-UP
Each long position in micro copper futures (February 2023) provides exposure to 2,500 pounds of copper.
Entry: 3.950
Target: 4.326
Stop Loss: 3.614
Reward/Risk Ratio: 1.20
Profit at Target: $940
Loss at Stop Loss: $840
MARKET DATA
CME Real-time Market Data helps identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs tradingview.com/gopro/
DISCLAIMER
Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
This material has been published for general education and circulation only. It does not offer or solicit to buy or sell and does not address specific investment or risk management objectives, financial situation, or particular needs of any person.
Advice should be sought from a financial advisor regarding the suitability of any investment or risk management product before investing or adopting any investment or hedging strategies. Past performance is not indicative of future performance.
All examples used in this workshop are hypothetical and are used for explanation purposes only. Contents in this material is not investment advice and/or may or may not be the results of actual market experience.
Mint Finance does not endorse or shall not be liable for the content of information provided by third parties. Use of and/or reliance on such information is entirely at the reader’s own risk.
These materials are not intended for distribution to, or for use by or to be acted on by any person or entity located in any jurisdiction where such distribution, use or action would be contrary to applicable laws or regulations or would subject Mint Finance to any registration or licensing requirement.
Trade fechado: objetivo atingido
We published this trade idea on January 9th, over the next 2 weeks copper prices rallied daily on China reopening led optimism that was seen across many China linked commodities. On the 18th of January copper prices reached a high of 4.355 which is above our target of 4.326. This led to a profit of $940 or 163% ROIC.
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