Sand Spring Advisors LLC
Too Many Specs: Copper
August 10, 2003
by, Barclay T. Leib
It is entirely possible -- if not likely -- that many readers of Sandspring.com are tired of hearing our negative views on copper. After all, we've only been espousing such views since late 2002, and then the week before last, copper proceeded to break higher, making new yearly highs, just after we made a renewed call for it to break lower. While copper then gave back most of these gains over the past week, its price still currently hovers above 80 cents on the active September NYMEX contract.
But here at Sand Spring Advisors we are contrarians at heart, and when we look at the chart below sent to us by a friend, we cringe at the amount of speculative involvement long this metal. Spec longs in copper currently stand at nothing short of record highs -- a very negative contrarian signal. Just look at how the metal has subsequently traded from other slightly lesser peaks of speculative froth.
It is of course possible that in a similar manner that the S&P could still make one last run toward 1060 or so, copper could still attract sufficient spec interest to poke its head up to 84.80 -- a further Fibonacci band of resistance that we can spy. But for investors who try to bet on either such occurrence, we have little other than to warn: Buyer beware! If copper has not already started its reversal lower with last week's sloppy price action, a downside reversal of significant magnitude is still in the offing. The trap door on complacent long specs may not have sprung open quite yet, but it will. Longer-dated put options and a bit more patience are the order of the day.
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