In recent weeks, metals of all sorts--precious and industrial--have taken a beating in a major selloff in the commodities market. Experts cite a number of reasons, including speculation, increased margin requirements (how much collateral investors have to put down), and concerns that the economic recovery may not be as strong as previously thought. But experts say the losses in copper are the most troubling.
Source: edegrootinsights.blogspot.com
The message from the market provides a much different perspective than the headlines. Money flows reveal the distinctive ‘footprint’ of a weak to strong hand transfer. Retail money flows have registered statistical concentration on the short side while connected money slowly builds their long positions into weakness. In other words, these are the money flows of a classic bullish setup.
The yellow and green shadow boxes illustrate retail trader’s bullish and bearish concentrations (setups), respectively. The chart below illustrates how they tend to bullish at the trading tops and bearish at the bottoms. The blue spot shadow reveals retail traders’ recent short side play into the decline. This action, while not necessary a bullish signal yet, suggests a tradable bottom is under construction.
Copper (JJC) and the Commercial (C) & Nonreportables (NR) Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest
The Diffusion Index reveals the strength of the bullish setup in the copper market.
Copper (JJC) And Copper Diffusion Index (DI)
As of May 10th, the weak to strong hand transfer (operation) is underway. Retail money trades with emotion; it is their mortal enemy. Connect money uses this weakness to beat the grass to startle the snakes. It’s a game that’s repeated over and over in every leveraged market (Copper, silver, gold, crude oil, US long bonds, etc). This is why I always follow the money and ignore the headlines.
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