Copper rallied nearly 25% from the Nov. 1 low to the Nov, 11 high. This rally pushed copper prices to their highest point since May 2015 and brought forth a surge in forward selling by copper producers locking in 2017 sale prices. Copper producers sold more than 60,000 contracts during this period and did so at a record pace. Furthermore, the commercial trader net position is threatening the record short total of -61,000 set in 2003. More importantly, the commercial traders’ total position has grown to its second largest on record indicating a consensus among the copper producers.
Finally, a bit of an anomaly in the copper market, the late February, early March period has been critical. The copper market has made a significant high or low during this period in 13 out of the last 15 years. The relative high or low made during this time has lasted well into summer, if not the entire year. The commercial traders are clearly betting on this year’s action building a high, rather than a low.
While copper producers have nearly set a new record short position, two other markets, cotton and the Eurodollar, did set new record positions.
The rarely discussed cotton market has witnessed new net record positions in both producer selling and speculative buying for the first time since 2008. That episode led to a sell-off of more than one-third between March and May of that year. The current disparity has been building since April, and the spread between these two groups has recently accelerated considerably, swelling the commercial trader total position to its highest level since November 2010. The combination of record producer selling coupled with a growing commercial position size once again indicates a consensus among cotton producers that cotton is overvalued above $.70 per pound.
There is a massive battle brewing in the interest rate sector. While the commercial total position in the cotton market is near twice the size of that of the speculators, and the commercial traders’ Eurodollar total position is more than four times the speculative position. And while the total cotton position for all players combined is less than 500,000, the total positions in the Eurodollar futures breach 18 million. This is clearly a different scale.
As it sits, most of the speculative short position has been initiated just above 99 in the June contract. Their recent selling leaves them precious little room for profit as we approach the long-term moving averages supporting the market at 98.75 and suggests a speculative short trap could be building in the interest rate sector.
Similar action is confirmed in the 30-year Treasury Bonds. Commercial traders have not only covered the large net short position they initiated over the summer but are net long for the first time since December 2015. The slide of more than 10% since the highs is too much to resist for their value-based orientation. Perhaps the most telling sign of a bottom is that the small speculators have been the single largest sellers of the 30-year T-Bond futures since Oct. 1. While the cyclical highs may have been printed, the current pace of selling may have gotten ahead of itself.