This is probably the most impressive bull market that no one was paying attention to...
And it's about to end.
When did you last think about copper prices?
Most folks would answer, "never." And that makes sense... Why would they spare a thought for boring old copper with the incredible rise in stocks we've seen over the last year?
This fact might surprise you, though... Copper bottomed the same day stocks did in 2020. And it's actually outperformed stocks since then.
Copper is in the middle of a major move higher. But it has entered a major sentiment extreme as a result. And that tells me that the end is likely near.
Let me explain...
Copper prices had fallen more than 50% from February 2011 to their March 2020 bottom. That kind of brutal and continuous decline made most folks give up on the metal. People stopped caring about it. But that has changed quickly.
Copper has more than doubled since bottoming last year. And lately, futures traders are all betting the good times will continue.
We can see this by looking at the Commitment of Traders ("COT") report. This weekly report tells us what futures traders are doing with their money.
That makes it a useful contrarian tool. That's because when these traders all agree, they tend to get it wrong. And we can use those sentiment setups to our benefit... by making the opposite trade.
After a year of massive gains in copper, futures traders have all been betting the trend will continue. These folks are coming off their most bullish reading in history. Take a look...
Positive sentiment from futures traders hit an all-time high at the end of 2020. It neared those levels again in February. And while it's down a bit since then, we're still at incredibly elevated levels compared to history.
As contrarians, this is important to understand. Futures traders are all betting the copper bull market will continue. But based on the last decade of data, that probably won't happen.
For example, copper sentiment peaked in early 2011... Then, the metal fell more than 30% over the next eight months.
Sentiment soared again as copper prices took off from 2016 to 2018. But it peaked again alongside the metal in mid-2018... Prices fell 35% in less than two years.
Now, sentiment has hit even crazier levels. That doesn't tell us copper has to crash immediately. But it does tell us that this bull market is overheated... And the end is likely near.
Until recently, this was a bull market few investors were paying attention to. Now they're all over it. And that makes copper an investment you would be smart to avoid right now.
Good investing,
Brett Eversole
Further Reading
"When investors fall in love with an asset, you can expect a reversal in the near future," Chris Igou writes. And history shows us that by avoiding sectors that are headed for a big drop, you're likely to improve your returns... Read more here: How to Never Lose Big in the Markets.
"You should always be a little scared of consensus," C. Scott Garliss writes. If investors are piling up on one side of a trade, the opposite tends to happen. That's why it usually pays to bet against the crowd. Last summer was a prime example... Get the full story here.
Today, folks hate the idea of owning one market in particular. And it could mean a double-digit rally is likely in the coming months...
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Regular readers know we love companies that take part in big, secular trends like electronic payments or semiconductors. These kinds of lasting cultural shifts can provide tremendous growth opportunities for the businesses at the center. And our colleague Dan Ferris has recommended one such company to his readers...
MasTec (MTZ) is a leading engineering and construction firm in North America. It specializes in clean energy (like wind farms and alternative power plants) and communications (like cell towers and fiber-optic cable). With its wireless infrastructure solutions, MasTec is positioned to be a big player in the 5G buildout that's taking place today... And the company recently reported a record first quarter across all its key metrics.
Dan recommended shares of MTZ to his Extreme Value subscribers in January. Readers who followed his advice are sitting on gains of 51% in four months... Plus, the stock recently hit a fresh all-time high. Congrats to Dan and his team on another great call!
