April 29, 2011
Commercial traders think that copper prices have nobusiness being so high.The weekly COT Report is published by the CFTC, and it lists the total positions held by commercial, non-commercial, and non-reportable traders of futures contracts. The commercials are the big guys who hold huge positions, and they presumably got to be the big guys by being the smart guys. Non-commercials are the large speculators, usually consisting of hedge funds. The non-reportables are traders whose positions are so small that they are considered not even worth individually reporting, according to the CFTC.
This week’s chart shows that the commercial traders have moved to a big net short position. This means that, as a group, the commercial traders are betting that a big decline is coming in the future for copper prices. One point to understand is that while the commercial traders usually end up being right in the long run, they are often early in adopting their lopsided positions. So the commercial traders’ net position should be thought of not as a timing signal, but rather as potential energy ready to be unleashed once the time is right.
A pending decline in copper prices would be a significant issue for stock market investors because of the strong correlation that copper has shown to stock prices in recent years.,,,MORE