Following on August 18's "A Caution For Copper Shorts: Surprising Resilience in Futures Prices" the futures are once again showing great resilience. On a day that the dollar index (cash) is up 2/3 of a point to 104.78, knocking silver down almost 3% (down 70 cents to $23.87) copper futures are unfazed, off a fraction of a penny. And look at right-hand side of the Commitment of Traders report in the second panel of the chart:
The commercial hedger's (green line) went from a short position to a long.
As noted in the verbiage from the August 18 post:
Although we think the trend in prices is down, and have since before the China weakness, problems in the wind turbine biz, electric vehicle sales slowdown etc. etc. became widely apparent, in the immediate term the fact the futures did not go much below $3.63 and have popped back to $3.70+ is a tell that something is afoot. $3.6955 last, after rising from 3.6270 to $3.7195 in a day.
Here's the one-year chart (daily prints) via FinViz:
Our guess is the strength comes from one of two sources: 1) China was buying again as the yuan weakened, essentially turning financial reserves into physical commodities as they have been doing with oil or 2) and potentially more ominously, the commercial hedgers (green line on lower panel of chart) have been closing short positions and may even be going long the futures. We'll have to wait for the next Commitment of Traders report to see the positioning.
A quick note on the COT, it is not a very reliable timing indicator but over longer time frames it proves up the general rule of futures trading: the large and small traders (the specs) can steal some cheese from the cat, (the commercials) but in the end the cat must win or the whole game stops. And the problem arises from the asymmetry of outcomes: when the cat loses, it loses its cheese. When the mice lose they can lose their lives. Or at minimum get bloodied for their trouble.
Just something to be aware of.
On that go-round the futures went from the 3.6955 at post time to 3.9085 on September 1, before backing off to today's $3.8425. We have some suspicions as to what is going on but for the moment the takeaway is: Be very careful if short, this resilience is an important tell on the market.
