Commercial Hedgers Hate Copper

JC Parets
October 1, 2020

From the desk of Tom Bruni @BruniCharting

In the futures markets, commercial hedgers are considered the "smart money" because they deal in a business that the asset they're trading is related to. On the other hand, speculators are simply outsiders looking to benefit from the price movements in that asset.

Hedgers also have much deeper pockets than the typical rank and file speculator, so when they're making extreme bets in one direction or another...we want to be paying attention.

...And right now, commercial hedgers are selling Copper like there's no tomorrow.

Don't believe us? You don't have to take our word for it. Just check the Commitment of Traders data that's put out by the Commodity Futures Trading Commission each week, showing the net positioning of commercial hedgers, large speculators, and small speculators.

In this chart from Sentimentrader, we're looking specifically at commercial hedger positioning, which is nearing its all-time low which it set in 2018, at a net short position of 68,912 contracts.

Click on the chart to enlarge view.

So what does this mean for Copper prices going forward? Well, at the very least, we'd expect volatility to continue around this 3.00 level...but not just because of that one factor.

Instead, we want to look at the weight of the evidence.

From an intermediate-term perspective, prices have rallied 50% off their March lows, broke their downtrend, and have now transitioned into an uptrend. But in the short-term, momentum is diverging negatively, prices are extended from their 200-day moving average, and resistance near 3.00-3.10 continues to prove meaningful.

All of these factors combined suggest that Copper is due for continued volatility in the near-term as it sets up for its next leg higher. And from an intermarket or big picture perspective, this view fits nicely into the "Reflation Trade Retest" thesis we discussed last week.

It's clear that Copper still has several meaningful headwinds in the near-term, but if prices can stay above support near 2.70 and momentum can stay out of oversold territory then its intermediate-term bias remains to the upside.

As always, thanks for reading, and please let us know if you have any questions!

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