First High-Yield Bonds, Now Dr. Copper

From the desk of Steven Strazza @Sstrazza and Ian Culley @Ianculley  

Momentum thrusts abound.

The other day on Twitter Spaces, JC made the point that we hadn’t seen many bullish thrusts this year. He was right. There have been a handful of obscure ones, but nothing really stands out. Until now…

Last week, the High-Yield Bond ETF $HYG registered its largest single-day rate of change since spring 2020.

Not bearish, right?

Then, yesterday, copper futures followed this up by rallying over 5% and booking their largest daily gain in almost a decade.

Also, not bearish.

These types of strong momentum thrusts tend to kick off new uptrends.

We just covered the action in HYG and highlighted the major bottoms that formed under similar momentum conditions.

Today, we’re going to review yesterday’s thrust in Dr. Copper and discuss what a sustained rally from here could mean for risk assets.

Let’s dive in!

Here’s a chart of copper futures with a one-day rate of change in the lower pane: 

Two things stand out from yesterday’s price action.

First is that it was the largest single-day rate of change since May 2013. Second is that the momentum thrust came just weeks after the bulls stepped in and defended a critical support level at the 2021 lows near 4.

Both of these data points are extremely bullish and support further upside potential in what has otherwise been a sideways mess since last spring.

Copper resolving higher from its current range would go a long way for risk assets. It acts as a barometer for global growth, depicting the overall health of the market.

New highs for Dr. Cooper would confirm the risk-on action we’re seeing from energy and other procyclical contracts.

And a breakout from this rectangle pattern could very well kick off the next leg higher for commodities and risk assets, in general. 

Regardless of which direction Copper resolves, it will provide valuable information. For now, the ball is in the bulls’ court, and HYG’s lead last week is promising. 

Let’s see if prices can run it back to the upper bounds of this range. How they react there should be the next big piece of information from the doctor.

We’ll be sure to let you know what the diagnosis is when we get it.

COT Heatmap Highlights

• Lean Hogs: Commercials are within 2% of their smallest net short position in three years.
• Feeder Cattle: Commercial hedgers continue to hold their largest net long position in history.
• Platinum: Commercials added to their net long position, inching within 4% of a three-year record.
• US Dollar Index: Commercial hedgers remain within 6% of their three-year record short position.

Click here to download the All Star Charts COT Heatmap.