It’s hard not to get excited when a plan comes together.  Markets have been such an integral part of my life many would think it would become a matter of fact when a market proves the rules. Yet, I still get excited when my analysis (more so actual trading) comes together for a result. When we consider the work we put in many decades ago and now leverage off, we could be excused for thinking “new markets” pay no attention to the old.

The numerous quotes from Gann and David about how people are markets, and at its roots, people do not change, does grate against the backdrop of pandemics, crypto, and all things 2021. We need to put into perspective that previous generations have experienced the same events but through a different lens, but you can imagine the fear of the plague being like what we have seen with COVID even with all the obvious differences.

If you cast your focus back to my last Platinum article in April (I had a break in May) we were discussing the use of Road Maps on High-Grade Copper. This market has been one that has experienced great trends over the years and in particular the last 18 months from the pandemic lows. Copper slides under the radar on many metals discussions, especially when compared with the Gold/Silver bugs as their passionate views about the return of these “precious” metals to the forefront of economics i.e., the gold standard.

The use of Copper has many applications and the main exchange we tend to focus on is the CME in the US. The contract specs can be challenging to start with due to point sizes etc. The good news for us is there are lots of choices and liquidity in the monthly contracts. The specs can be found at the following link.

https://www.cmegroup.com/trading/metals/base/copper_contractSpecs_futures.html#

There are so many cycles of note occurring in the Copper market, I would encourage you to be looking at time counts that are repeating like 116-118 days and 146-147 days. These should be easy for you to identify and recreate when looking over the last couple of years.

Chart 1 shows the 2011 run-up into what eventuated into a July top and a significant run down from there. In short, it signaled the end of the 2011 bull market. The move was exactly 420 calendar days or 60 weeks.

Chart 1 – Daily Bar Chart HG-Spotv

If we view the cycles that 2021 has thrown up, we can see an interesting similarity in 2021 albeit with a different termination point. The top on the 10th of May was 417 days from the March 2020 low. The first lower top on the 12th  of May was 419 days or again 60 weeks from bottom to top.

Chart 2 – Daily Bar Chart HG-Spotv

Could this signal the end of the sustained bull market we have seen?

The next chart outlines a basic entry using daily bar charts shorting the first lower top on the one-day swing chart. There were ways to use intraday analysis to improve the risk vs reward ratio, but we will keep it simple for this example.

Chart 3 – Daily Bar Chart HG-Spotv

One of my tested strategies in the past that delivers, is to enter on a smaller swing chart time frame i.e., in this case, a 1-day chart. However, once the market starts to move, we can manage the risk on a 2-day chart.

Chart 4 shows how the market has developed to the downside and trailing stops behind swing tops of a 2-day chart see the trade still open. There have also been opportunities to add to the position based on your trading plan.

Chart 4 – Daily Bar Chart HG-Spotv

Assuming stops are trailed in this manner, there is approximately a 4 to 1 reward to risk ratio in play. The risk of the current leg down retracing back up and taking back our unrealised profit could mean you adjust stops lower than the current 2-day swing top. I have highlighted the 50% milestone of the current range down; you might consider that as a guide.

On the whole, commodities have had a great 18 months, the oil market is also moving nicely in its uptrend. Commodities can run hot and cold based on the global mood, we have seen them fall off the radar over the last few years, I encourage you to dust off your favourite commodity analysis as we may be in for some activity and focus as we move into the second half of 2021.

Good Trading

Aaron Lynch