Following up on my last few reports, we can see that commodities are finally experiencing a revival and gaining some attention from investors who typically avoid the intricate and unpredictable world of consumables.
Commodity Super-Cycle:
While this interest makes me very happy, it would be unfair if I didn’t remind short-term speculators that these products have risen considerably since the beginning of the year. Because of this, entry levels need to be carefully considered.
As we saw with cocoa, increased interest brings increased volatility. This is advantageous when you are on the right side but also leaves room for significant corrections, which mainly hurt unsuspecting speculators. For example, cocoa prices retraced 62% of this year’s rally due to such volatility.
The cocoa rally was a once-in-a-lifetime event, so other markets might not experience the same volatility. However, with more investors recognizing the potential of commodity markets, I advise you to remain vigilant about this year’s market activities and resist the urge to dive in hastily due to the fear of missing out.
Using copper as an example, we could argue that technically, the upside potential is somewhere between 7.50 and 8.00, which is about 300% higher than the pre-Covid price of copper.
The shortage, lack of Russian supply, and increased demand for this metal in various electrical goods and equipment present compelling reasons to invest in copper and aluminum. However, nothing moves in a straight line, and with the current high volatility, even the most daring speculators should carefully consider the market’s position before jumping in.
As I stated in my previous report, I have been in and out of copper a few times this year, yielding good results. I bought in before the market took off and again after a small correction. As the market rises, I am being more cautious, especially as we approach the summer months, which can sometimes be a period of market weakness.
In the past, as dealers, we would always look for an opportunity to buy three-month copper a few weeks before Thanksgiving (November), and this strategy often paid off. While this seasonal move is not guaranteed, some old habits are hard to shake off.
Do not misunderstand me; I am bullish on metals and other commodities and foresee further gains across the board. However, I am also acutely aware that today’s speculators tend to jump from one product to another based on news and social media hype, often without thoroughly investigating the current stage of the trading cycle.
I have been bullish on commodities for some time, and that hasn’t changed. But my role is not to give trading recommendations; it is to share some of the experiences that have allowed me to have a long career and give readers the opportunity to think about how and what they trade, beyond the noise and hype.
You can jump before you think, but at least prepare.
For now, I prefer to buy into weakness. However, give it another month, and I might start selling into strength.
Whatever you decide to do, enjoy!
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