The terrific Asbury Research recently featured how commercial hedgers have made a huge bet on copper. Although some may disagree, it's generally accepted that in the world of futures, commercial hedgers tend to be the smarter money. Granted, much of their smartness or ability to be more right than wrong comes from simply being on the other side of trades that tend to be more wrong than right. In the zero-sum game of the futures market, commercial hedgers are frequently on the opposing side of an increasingly popular trade, and as we know being contrarian is very often a winning strategy.
I would also emphasize that the timeliness of commercial hedgers greatly improves at extremes, meaning when their position size approaches levels that have rarely been attained over time. And if you read the Asbury Research piece (strongly urged), it's quite evident this is one of those times, with commercial hedgers at "their largest collective net long position for copper in the 30-year history of the contract."
The weekly futures chart of copper further illustrates the ups and downs of contract flow.
Note the red circles signifying levels where commercial hedgers established very large net long exposures -- and more often than not these levels have coincided with bottoms for copper. And vice versa, at levels where commercial hedgers have been very net short, as was the case at the start of 2011, copper has tended to be at a peak. I would also point out that the round-number of $3.00 appears to be a meaningful level of longer-term price support. (more)Please share this article