Observe the copper market of commodity metal faucets
The distribution of funds is the same as that of the gold market in May and June
Copper prices have fallen excessively
2024-07-23 Wellxin Investment Consulting and Research Center
(Text) Chief Analyst Yang Yijun
Source: Yang Yijun Gold & Financial Investment
Last week, while the dollar index rose slightly, commodity markets fell across the board. Even if the international spot gold price once soared sharply to $2483.57, the weekly close was not spared from leaving a huge upper shadow to close in the negative, and it has the meaning of "shooting star" peaking.
Last week, the international spot gold price fell by $10.37, or 0.43%; The U.S. dollar index rose 270 points, or 0.26%; The Wellxin Gold Index fell 167.85 points, or 3.16%.
The international spot silver price fell 5.07% to close at $29.21;
The international spot platinum price fell 3.65% to close at $965.70;
The international spot palladium price fell 6.28% to close at $908;
NYMEX crude oil prices fell 4.36% to settle at $78.60;
London copper fell 5.94% to close at $9,290;
London Aluminum fell 5.6% to close at $2,350;
London zinc fell 5.93% to close at $2,774;
London nickel fell 4.17% to close at $16,220;
Lunxi fell 7.66% to close at $31,000;
London lead fell 4.18% to close at $2,121.50;
The Dow rose 0.72%, the NASDAQ fell 3.65%, and the S&P lost 1.97%.
Last week, commodity markets were all in the dark, including agricultural markets. The operation of the entire financial market is characterized by a typical mode of operation of economic downturn or recession expectations.
Although I believe that a round of economic and financial crises of at least moderate magnitude will inevitably occur in Europe and the United States, commodity markets seem to have overreacted at this stage, especially commodity metals.
As the absolute leader of the entire commodity market, the softening of oil prices is generally normal, and it is currently testing the resonance support of the annual and semi-annual lines.
As the leader of commodity metals, copper prices at this stage appear to have "fallen excessively". Through the characteristics of the capital distribution of the COMEX copper market, the fundamental demand signals of the commodity market, and the technical aspects of the copper price itself, we can clearly interpret the information of excessive decline in copper prices at this stage.
For example, the weekly candlestick of London copper, the net position, long position, short position of hedge funds in the COMEX copper market, and the United States manufacturing price payment index reflecting the demand of the commodity market is illustrated:
Compare and observe small figures 1, 2 and 5, that is, there is a strong positive relationship between copper prices and hedge fund net copper holdings and the United States price payment index. When the fund's net position tends to be distorted in response to the copper market signal, the price payment index signal may make an effective supplementary response.
The fund's net position and long and short positions in the copper market largely reflect the investment or speculative opportunities in the copper market; The price payment index is a fundamental reaction to the copper market and even to the entire commodity market. Both are used separately and have drawbacks.
The fund's impact on the general commodity market is far less effective than its impact on the gold market. Gold has two major attributes that determine its fundamental difference from general commodities: one is the strong financial attribute equivalent to the status of credit money; The second is that there are obvious bottlenecks in global production capacity, and miners cannot expand production capacity because of the expansion of demand.
Therefore, taking the copper market as an example, the combination of hedge fund fund distribution information and price payment index will have a better reference effect for market applications.
Comparing and observing the small figures 2 and 3, after the London copper bottomed out at $4,318 in 2016, the fund's net position in COMEX copper futures is highly consistent with the long position pattern, and is further consistent with the copper price K-line pattern in Figure 1. It shows that the copper market after 2016 is generally in a bull-dominated stage.
Figures 1, 2 and 5:
The net position of hedge funds and the United States manufacturing price payment index are at the bottom at the same time, and the corresponding measurement of copper prices is at the bottom of the cycle, with the A position at the beginning of 2016 being the most typical;
The net position of hedge funds and the United States manufacturing price payment index are at the peak of the cycle at the same time, and the corresponding measurement of copper prices is at the peak of the cycle, with the B position at the beginning of 2018 being the most typical;
D and E positions, hedging the net economic position, the long position peaked, but did not accurately correspond to the peak of copper prices. At that time, inflation in Europe and the United States continued to rise, and the manufacturing price payment index reflecting fundamental demand in D and E positions made up for the failure of hedge fund funding signals and accurately measured the top and bottom of the copper price cycle.
In position E, copper prices have shown a very obvious "top divergence" signal compared with the net positions of hedge funds, long positions, or compared with the form of the manufacturing price payment index: copper prices have reached a new high, while hedge funds have long demand, and the price payment index reflecting fundamental demand has not reached a new high, which is a dangerous warning signal that the copper price cycle has peaked.
F position, fundamental demand continues to decline, but hedge funds for the copper market's investment, speculative demand has recovered in advance, more or less the market implication of the spring river plumbing duck prophet, which means that the copper market is very likely to bottom out in the medium term. Since then, the price payment index has bottomed out and slowly recovered, which will undoubtedly help consolidate the medium-term bottom of the copper market.
Of course, what we are currently focusing on is the reference value of the information after the G position for the current copper market. G position, corresponding to the bottom of London copper at $8,127, hedge funds for the copper market, speculative demand for the blowout, the fund period copper net holdings, long positions rose rapidly and sharply, reflecting the fundamental demand for the price payment index also fluctuated for the better. Copper prices hit an all-time high of $11,104.50.
Since then, copper prices have adjusted rapidly and sharply, falling from an all-time high of $11,104.50 to a low of $9,133 this week, with a downside of about $2,000. Previously, the price of copper rose from $8,127 to $11,104.50, and the upside was only about $3,000. At this stage, copper prices quickly and sharply gave up two-thirds of the gains in the bull market band of $8,127 to $11,104.50.
Where does the downward momentum for copper prices come from? Since the copper price peaked at $11,104.5, hedge funds' long positions and net long positions have been well locked, and there is no sign of significant profits. Looking at the short positions of hedge funds, they did not take the initiative to short in the process of the sharp decline in copper prices, but reduced their holdings slightly. It shows that the fund does not think that the recession of European and American fundamentals will come so quickly. Looking at the fourth quarter of 2019, when copper prices slowly fell in the medium term to test the 250-week moving average, the downward speed was not fast, but hedge fund shorts increased their positions sharply, highlighting the bearish outlook for the economy. In the recent sharp adjustment of copper prices, there is no such signal. The price-to-pay index corresponding to Figure 5 also shows that the demand for the commodity market has not declined.
Further observation of the fundamental demand in the process of sharp adjustment of copper prices in the thinking stage, the information of hedge fund futures copper net positions, long positions, and short positions is "very" similar to the fund futures gold position information in the process of adjusting the high range of gold prices in May and June? ! It's just too much to look like! : Copper prices have been sharply adjusted, the fund is long and net long locked well, and the fundamental demand information has not deteriorated, so the sharp adjustment of copper prices will naturally appear to be overadjusted!
At present, in the process of sharp adjustment of copper prices, the lock-in of the fund's long and net long positions is much better than that after the copper price peaked at $10,747.50 in 2021.
If we confirm that the copper price may be overcorrected, we can further focus on the timing of its operation through technical analysis, as shown in the monthly candlestick chart of copper price:
Even when copper peaked at $10,747.50 in 2021 and reached a new high of $10,845 in January 2022, copper prices have never effectively broken through the Bollinger Pivot Line on a monthly basis. The monthly line breaks through the Bollinger Pivot line, which constitutes an opportunity to go long.
At present, copper prices have once again broken through the monthly Bollinger Pivot line, and are facing hedge fund longs, net long positions better locked-in, and fund bears dare not take advantage of the situation to short, of course, you should consider dipping long copper.
If so, the bearish signal of the monthly KD and RSI is a short lure and a deception line!
Another example is the weekly K-line chart of copper prices:
In the process of falling copper prices in one go after hitting a record high of $11,104.50, the author believes that the first breakdown of the weekly Bollinger middle band that maintains the upward trend must constitute a short inducement. This was true after copper peaked at $10,747.50 in 2021 and after copper peaked at $10,845 in 2022.
Looking at the weekly KD indicator, the current oversold state is basically the same as when the copper price bottomed out at $6,955 in the middle of July 2022. Copper prices have fallen excessively in the highlight stage!
Investors can observe the daily KD and RSI indicators of copper prices by themselves, which are also in an extremely oversold state!
Another example is the trend of copper price weekly pattern:
The H1H2 shock bull market channel composed of $6955, $9550.50 and $7856 is composed of three points. This can only be regarded as a phase or mid-term orbit, and the real theoretical orbital line pressure should be at the H3 line position. In other words, H1H3 is a macro bull market channel in the standard sense.
The May copper price tested $11,104.50, which just corresponds to the 161.8% resistance level of the golden section line of the "big three waves" of $6,955 to $9,550.50. After the pullback, it should have been at the top of the source wave at $9550.50 to get effective support, and a month ago it seems to have really gained support, how do you know that the current new low, how can it not be a short lure, at least at this stage!