Copper topper

Although the S&P 500 Materials sector hasn’t been setting the world on fire lately—it’s in the middle of the pack with a roughly -1.1% YTD return—the metals and mining sub-sector has been a bright spot, +1.3% on the year.

And way ahead of that pack is Southern Copper (SCCO), a copper-concentrated metal miner and refiner that was up around 15% on the year as of yesterday. After making a new all-time high in January when it briefly pushed above 2011’s peak of $50.35, the stock fell close to $45 during the February correction—but then roared back to the upside, gaining 20% to top $55/share on Tuesday.

Southern Copper (SCCO), 12/7/17–3/7/18

Source: OptionsHouse

The company released Q4 earnings on February 6—in-line with estimates but also showing a year-over-year sales increase.1 The stock rallied strongly that day, but the move may have gotten overwhelmed by the bearishness gripping the market at the time. Since March 8, though, there’s seemingly been no stopping the stock—even though copper prices have cooled in recent weeks.

Copper rallied strongly off its May 2017 low before topping out (for the time being) in late December. Many copper-mining stocks enjoyed the ride, putting up strong numbers for the year—SCCO rallied 48.6%, for example. Despite having pulled back from that high over the past couple of months, though, March copper futures (HGH8) were still trading toward the upper end of their 52-week range:

March copper futures (HGH8), 3/13/17–3/7/18

Source: OptionsHouse

Also, two other pieces of interesting (and potentially bullish) data flashed on the market radar recently:

●As of Monday, SCCO “short interest”—the percentage of shares on loan for short-selling purposes—was low (5%), suggesting there weren’t a lot of equity traders betting against the stock.2

●On Wednesday, SCCO call options out-traded SCCO put options by more than 90:1 (see below).

LiveAction Call/Put scan, 3/7/18

Source: LiveAction scan, OptionsHouse by E*TRADE

SCCO won’t be immune to a sustained decline in copper prices or another sell-off in the broad market, but its current relative strength makes it an interesting stock for active traders to keep an eye on.

As is always the case when a stock has just made a high-momentum run, long-time traders will often choose to enter after a pullback, even at the risk of missing an entry. Southern Copper’s recent price behavior has certainly shown a pattern of pausing or retreating slightly after each surge.

Market Mover Update: One of the long-time attractions of commodity futures is they allow traders to diversify away from equities. Recently, good-ole’-fashioned grain futures have been on the move as the stock market has been working its way through a correction.

May wheat futures (ZWK8), for example, rallied 20% between January 16 and March 1, breaking out of their February consolidation and reaching their highest level since last August amid forecasts for persistent dryness in the US plains, which could hamper crop production. (Argentina’s most severe drought in decades is also contributing to the upward pressure on grains.)3 Wheat prices have consolidated for the past four days, though, possibly in anticipation of today’s crop production and agricultural supply and demand data from the US Department of Agriculture (USDA).


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1 Southern Copper (SCCO) Q4 Earnings In Line, Sales Rise Y/Y. 2/6/18.

2 IHS Markit. See what the IHS Markit Score report has to say about Southern Copper Corp. 3/5/18.

3 Reuters. Argentina drought bakes crops, sparks grain price rally. 3/5/18.