Ferrous Futures in Rally Mode

Activity in the ferrous futures markets has kicked into high gear since we last met.  December SGX Iron ore futures have rallied over 7 percent over the past month closing today at $66.75/t, while LME Turkish scrap futures have rallied over 8 percent in that time closing today at $351/t.  Today, Q1 CME Midwest HRC futures traded over 3000 st/m at $645 and June traded $640/st. Second half 2018 traded small up at $638/st.

CME Midwest HRC Futures Curve

The rally in SGX iron ore futures has also shifted the curve from the strange flat bump into its historical  backwardation of the past few years.

SGX Iron Ore Futures Curve

LME Turkish scrap futures have rallied as much as $25 over the past month with December trading up to $351/t today.

LME Turkish Scrap Futures Curve

In the last couple articles, we’ve been monitoring the development of an “inverse head and shoulders” pattern in the chart of the rolling 2nd month HRC futures.  An “inverse head and shoulders” pattern is a bullish breakout pattern. If it develops and then the price breaks through the neck line, it could indicate a big rally to follow.

Here is an example:

For more info about the pattern click here.

The charts below are of the rolling 2nd month HRC futures price.  The 2nd month “rolling” futures is created by combining each of the 2nd month futures contracts through time. For instance, during the month of November, it is the December future. If the rolling 2nd month HRC future price breaks above the $650 “neckline,” this chart pattern indicates a significant rally to follow. 

And since November just settled, January now becomes the rolling 2nd month HRC futures price.  As you can see below, with January trading $645 today, the rolling 2nd month HRC future is now right at its neckline resistance level.

Will the $650 level be like the steel curtain on the left or the right? 

The opportunity might present itself in HRC futures at any time, so pay close attention to the $650 level in the rolling 2nd month CME Midwest HRC future, keep your local broker on speed dial and remember Ferrous Bueller’s philosophy…

“Life moves pretty fast.  If you don’t stop and take a look around once in a while, you could miss it.”