Trump Administration’s Tariffs and Their Impact on Southern Copper Stock

Easily one of the most significant decisions in recent memory, President Donald Trump confirmed earlier this week that his administration will implement tariffs on imports from Canada and Mexico. This high-level action also included an executive order signed on Tuesday that authorizes an analysis of the national security and economic impacts of importing copper and other commodities. Following this announcement, Southern Copper Corp SCCO has seen its stock rise.

Understanding the Investigation’s Importance

According to a report from the New York Times, the investigation aims to assess the overall viability of applying tariffs to copper. A vital material in manufacturing and construction, copper is also crucial for U.S. military operations. More importantly, it plays a significant role in the artificial intelligence sector.

This connection might seem surprising, but a drop in demand for copper emerged as one of the lesser-known concerns following the DeepSeek impact—the Chinese AI model that affected the tech industry in January. Data centers, which heavily rely on copper, could face supply chain challenges influenced by shifts in machine intelligence.

However, the outlook for SCCO Stock isn’t entirely optimistic. For one, the anticipated copper tariffs may never be enforced, which could hinder growth momentum. Furthermore, even if tariffs are placed on copper, it’s uncertain whether this would lead to positive outcomes for SCCO since past experiences from Trump’s first term suggest that tariffs ultimately hinder copper stocks.

Technical Analysis Indicates Potential for SCCO Stock Gains

While the long-term prospects for SCCO Stock remain uncertain, more adventurous traders might consider positioning themselves ahead of future developments. This strategy aligns with the investment principle of buying on rumors and selling on news. Those interested in this approach may find support from technical analysis and trends in stock performance.

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Firstly, SCCO Stock may currently be forming a pattern similar to a bullish pennant. While market technicians might argue that this pattern does not fully meet traditional pennant criteria, its occurrence during a crucial development is noteworthy.

Secondly, the statistical evidence is more compelling for some traders. Analyzing pricing data since January 2019, there is a tendency for SCCO Stock to trend upward. A position taken at the start of the week displays a 52.34% likelihood of a price increase by its end. This probability improves to 57.32% over the next eight weeks.

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Notably, these probabilities remain stable under varying conditions. For instance, after a 4.4% decline last week, SCCO historically tends to show increased bullish probabilities following brief periods of volatility. If SCCO drops up to 5% in one week, the chances of a rebound improve, with bullish probabilities reaching 56.64% the following week.

Evaluating Trading Strategies Moving Forward

By law, Secretary of Commerce Howard Lutnick must submit a report on foreign copper to the president within 270 days. However, Peter Navarro, senior counselor for trade and manufacturing, suggested that Lutnick would act swiftly, operating “in Trump time.”

This uncertainty leaves traders to consider their options. For those leaning towards short-term strategies, two potential approaches stand out.

The first approach is relatively high-risk, involving a bull call spread in the options chain expiring on March 21. In a favorable scenario, traders could see a median return of around 5.5% over three weeks, targeting a price increase from an estimated $94 to approximately $100.

Specifically, aggressive traders might consider the 97.50/100 bull spread, which involves purchasing the $97.50 March 21 call for $285 and selling the $100 call for $165. This strategy creates a net debit of $120 and allows for a maximum payout of $130 if SCCO reaches $100 or higher at expiration, representing a 108.33% return.

An alternative, although still very risky, is to propose the 100/105 bull call spread in the options chain expiring on April 17. Assuming this week counts as the first, historical returns for a positive scenario exceed 13.14%, projecting SCCO Stock to reach $106.35.

While it’s theoretically feasible for SCCO to attain the $105 short strike price by expiration, several favorable developments will need to occur in the coming weeks.