Copper prices reached a new high early last week, seemingly thumbing their noses at all the naysayers (including me). But they weakened in trading during the rest of the shortened week of trading. And today, they fell dramatically, down 3%.
One sentiment gauge for the industrial metal is indicating a truly extreme bullish condition. The Bloomberg Copper Sentiment indicator is a weekly survey of Bloomberg terminal users on whether they believe that the price of copper will fall or rise. Right now, the 4 week moving average of this sentiment indicator is as high as we’ve seen it for the past 5 years.
Back then, copper had gone on a similarly dizzying rally that had taken prices to a parabolic and unsustainable level. Right now we don’t have that chart pattern but prices are certainly extended. Right now the Bloomberg Copper sentiment is at 76% suggesting that in the past 4 weeks, appx. 76% of those surveyed believe that prices will go even higher. On April 2006 the peak was 82%.
There are of course, several other gauges of copper sentiment and they are not all at a similar extreme. Commitment of Trader’s reports are showing a persistent and high degree of buying from small speculators. Taking the other side of the trade are the commercials who have reduced their short positions to multi-year lows. Overall, the general mood for copper is very bullish.
It would be truly poetic if copper were topping here, as sentiment suggests. After all, with the advent of not one but two physical copper ETF’s the ducks are about to get fed.
Michael Kahn over at Barron’s features charts of copper stocks and their ominous head and shoulder topping patterns – Southern Copper (SCCO) and Freeport-McMoRan Copper & Gold (FCX). You can see the article and charts here: A Crack in the Commodities Story.