Two charts for you to view in regards to copper:
I should note that the massive long position currently held in copper alongside of an incredibly large short position held by the other category of large traders is PRIOR to the news released Wednesday when China, in an attempt to limit pollution, issued restrictions on smelters running in that nation; restrictions which were considered to reduce the supply of the base metals and which subsequently sent copper prices soaring to within a couple of cents of hitting $3.00/pound.
One can only imagine where these respective positions are at this point!
Thus far there is yet no sign of a top in the red metal. Dips are being bought with the price not setting back significantly before eager buyers swoop back in.
I would watch for a close below this month’s lows for a sign that the rally has run its course or some other sort of reversal pattern but for now, these hedge funds are buying and buying and buying.
The Copper Miners ETF, “COPX”, looks a bit heavier than the actual metal itself.
It is struggling to regain its 10-day moving average and is exactly right in the middle of its high and low for this month. In other words, it is in No-Man’s land at the moment. We need a breakout, either up or down, to clarify the next move’s direction. Right now there is a balance in this market.
Let’s see what we get next week and if there is any change to the consolidation pattern currently in place.
Switching over to silver:
As can be seen from this chart, hedge funds increased their net long position this past week. However, it was mainly accomplished by a rash of short covering as can be evidenced from the next chart.
There has been a sharp decrease in hedge fund short positions and while new longs are being added by this group, short covering still is the dominant feature. This week alone it was a 7:1 margin of short covering to new longs added by hedge funds!
It is interesting to note here that the other group of large traders has used this rally to both lighten existing long positions as well as adding a fair number of new shorts. They remain as overall net longs in the market but are well off their peak exposure about 7 weeks ago.
Commercials and Swap Dealers are now selling with both categories net short.
Silver is a strange metal because one never knows what it is going to decide to be when it wakes up each morning, a precious metal or an industrial metal.
There is no doubt in my mind that soaring base metal prices, especially copper this week due to the China news, is supportive to silver. Also, with gold being higher, the likelihood of silver dropping was very low. No doubt that led to a great deal of short covering.
The daily chart is currently detailing how this short covering is at work since we are seeing some long wicks on these candles that are above the $16.95-$17.00 level. It looks as if the short covering is taking it higher but there is not enough NEW BUYING to eat through the offers appearing up at those levels. The result is that the market is firm but as of yet unable to break out strongly to the upside and start a better defined uptrend.
Until this region of balance is resolved, by either an upside breach of today’s high or a downside breach of this week’s low, we are range bound with a friendly bias at this time.
A weekly look at silver still shows a range bound market working above the $16.00 level but still unable to clear its spring highs.