"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Saturday, June 14, 2014

Hedge Funds Routed by Large Reportables in Copper

I have to admit, I am always fascinated by the Copper market. As I have said many times here, I watch it and crude oil as my two key indicators for judging the strength or better - perceived strength or lack thereof in the global economy.

Not too long ago I began posting charts of the Commitment of Traders positioning in the red metal because I had noticed what was a rather unusual occurrence. The two groups of large speculators, which dominate the markets, were at odds on which direction the metal was heading. It is not unusual to see these two groups have a somewhat different positioning in a market. What was different however was the fact that their bets as to which direction copper was headed were nearly identical but on opposite sides of the market.

I remarked at the time that one of these groups was going to be a big winner and the other a big loser. I am happy to report ( can you tell what my attitude is towards hedge funds? ) that the Large Reportables made mince meat out of the Hedgie boys.

Here is the latest COT chart showing the rout of the hedge funds. You can see their bet on rising prices backfired big time. Out they have come as long liquidation from this group has kicked in as the price has continued to move lower. Look at the sharp fall in the net long positioning of the hedge funds! It has been cut by nearly 75% in just two weeks!

The Large Reportables have been booking profits into their selling as they cover profitable shorts.

Here is the chart of the actual metal itself. Observe the sharp retreat in price as hedge funds bailed out.

Copper has managed to hold into the first level of support shown on the chart. That extends down to just above the $3.00 mark. If the bears, who are currently in control of this market, are able to take the price down through this level, they have the increasingly probability of kicking off a trending move lower. That would portend a rather ominous slowing of the global economy. With the mixed data that we keep getting, whether it be here domestically or globally, I would think that the odds favor more of a holding pattern here in Copper rather than a trending move but I am open to either possibility. The chart pattern and price action will tell us which scenario to expect.

It is entirely possible that we see Copper heading one way ( Lower) and Crude oil, my other key indicator market, heading the other ( Higher). It all depends on events in Iraq and whether or not the market feels that there is real potential of crude oil supply disruption as a result. If crude oil prices continue to move higher, it will not be long before traders/investors begin to read that as a negative influence on overall economic growth. I would suspect that sentiment will be reflected in copper breaking below support.

I honestly do not know how events over in Iraq are going to play out. With Iran talking about getting involved over there, we have another factor to consider.

What an enormous mess!