by Raul de Frutos on DECEMBER 15, 2016
Scenario: Within the next two months you need to go to your supplier and buy metal. Let’s say you are thinking about placing an order that will meet your metal needs for the next six months. Let’s say you correctly identify that you are in a bull market (you read us).
Therefore, as you expect prices to keep moving up, you quickly grab the phone and call your supplier to place the order ASAP.
Is that the right way to do it? Nope.
I say this over and over, but I don’t get tired of saying it: The key to being consistently ahead of your competitors (and beat the market) is not about predicting, but about finding the right time to buy. Markets are unpredictable and you can always get it wrong. The key to consistently lowering your purchasing costs is to buy at an attractive price, one in which the metal has high probability to make a move higher.
In a previous post (part one of this article), we talked about one of the situations we like to use to hedge/buy forward, price consolidations. Today we’ll show another good circumstance to time your purchases during a bull run:
Price Pull-Backs
In a bull market, sometimes prices rally and it’s risky to buy at those levels because prices could pull back simply due to profit taking. A good opportunity to time your purchase is when prices correct or pull back and then momentum picks up again. That signals that buyers are again back in control and prices are likely to move higher.
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We’ve seen examples of price pullbacks in pretty much across all industrial metals this year. A good example is tin.
After calling bull market back in April, buyers could have bought tin after a price pull back in May and recently after another pull back in November. It’s important to identify those areas where we expect to see support, which we indicate in our monthly outlooks. Buyers had another great opportunity to buy tin back in July after a price consolidation.
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A more recent example is steel. We called bull market in steel back in April, when buyers had a great opportunity to buy forward (we recommended buying one year’s worth of demand). But then, in the summer prices signaled a top, we recommended subscribers to hold on purchases, and wait for a price pull back to buy again.
Prices then corrected over the next few months. During price pull backs is important to wait until momentum picks upwards again. That happened during the third week of November, when we sent our subscribers a note recommending to buy steel forward. Another textbook price pullback during a bull market.
