Commercial traders in the copper market have been extremely active through the first half of 2015. It was obvious by the record net long position they set in January that they had big expectations for global growth and the corresponding demand for copper to continue into the summer. However, a growing stream of soft economic data which led to dovish comments by the Federal Reserve Board which led to a dramatic shift in commercial trader sentiment just as the market was approaching solid resistance is now quickly sending this market downward towards its seasonal lows.
The softening stream of economic data has continued to roll in. This 
week, Bank of America Merrill Lynch noted that global investors have cut their exposure to the U.S. equity markets to their lowest level since the financial meltdown of January of 2008. Interestingly, this coincides with a sudden and rapid steepening of the yield curve. These two pieces together sound like a fundamental shift from paper to physical assets in anticipation of an inflationary environment yet, the job growth, spending data and commodity prices remains flat to soft.
Given the contradictory macro factors at play, I find it much easier to focus on individual trading opportunities rather than trying to execute a single meta theme within the markets to replicate the anticipated economic environment. July copper futures have spent a week hovering just under the key resistance between $2.95 and $3.00 per pound. Looking at the long-term chart below, also shows how eagerly the commercial traders jumped in to purchase future inputs as prices collapsed to $2.50 per/lb.
No sooner had the commercial long hedgers loaded up than their collective opinion pulled an about face. The market's 10% rally off the $2.50 lows has been used by the commercial traders to not only offload the new, cheaper long positions they'd recently acquired but also to push the net commercial trader position onto short side of the ledger. The next chart shows our classic COTSignals chart setup. Moving to the last year and a half shows just how nimble the commercial traders can be. Furthermore, the predictive value of their actions can be tracked by each buy and sell signal on the chart. This is why we track their net position and their momentum. It is also why we only trade in the direction of their expectations.
Finally, seasonal analysis provided by Moore Research indicates an evolving pattern in the copper futures market's recent behavior. Two nice things about Moore Research. First of all is that they index the pattern. This normalizes the data and makes it much more user friendly. Secondly, they provide the 30yr, 15yr and 5-year pattern to account for a market's evolution. In this case, it is quite clear that the new pattern puts more downward pressure on the market into early June than it has in the past (emphasis ours).
The combination of technical, fundamental and seasonal weakness leads me to believe that the recent Commitment of Traders sell signal in July copper futures should be heeded within the context of a trading opportunity. There are currently too many conflicting data points and opinions to form a single, cohesive economic theme from which to execute a portfolio of futures market positions. Therefore, we'll continue to keep it simple, manage our losers and take our profits as they materialize.
