LME COTR - Risk of long liquidation in some metal; upward momentum eases

Net impact: Bullish

Comment: The money managers' net long position climbed last week for the seventh consecutive week to a fresh high of 79,191 lots. It rose a net 1,137 lots via 2,859 lots of fresh buying and 1,722 lots of fresh selling.

The gross short position is small. Shorts have added to positions over the past three weeks, though. 

Given the loss of upward momentum, we would have not be surprised had there been more short selling. But so far what selling there has been has been limited and has been more than countered by fresh buying.  

Given the gains and a gross long position that is already at record highs, the buying from money managers may well start to tire.

Net impact: Bearish

Comment: The double top on three-month prices seems to have encouraged money managers to go further short - they added 13,267 lots to their growing short position last week. The longs continue to accumulate too, adding 9,475 lots.

The net long position pulled back from record highs, dropping 3,792 lots.

Despite the net position being just below a record, the gross long and short positions are still well below their highs. The gross long position is in mid-range while the gross short position is near its lows. With neither at an extreme, the current trends could continue.

But high prices, a double top and a near-record net long position could prompt more shorting and long liquidation. 

Comment: The net long money managers' position dropped 999 lots last week via 1,248 lots of shorting and 249 lost of fresh buying.

With the longs already extended, there is a risk of long liquidation but so far price dips have been short-lived. 

With the gross long and short positions climbing, the market is becoming more polarised. This could either trigger profit-taking or convince the shorts to throw in the towel.

The downward resistance line on the price chart raises the risk of stale long liquidation should prices not regain upward momentum.

Comment: Money managers reduced their net long position by 129 lots last week.

The short position has been falling for most of 2016. It climbed briefly three weeks ago but resumed its downward trend two weeks ago.

Still, the gross short and long positions are both relatively low so there is room for either to expand.

Comment: Money managers' activity in zinc appears to have slowed, which suggests they are tiring. If the longs are not adding, there is an increased risk that prices become capped and stale long liquidation emerges, especially since many funds must be sitting on large profits. 

At these levels, zinc probably needs to see further buying for prices to hold up. The downward-to-flat slope in the green line suggests this may be lacking. If the buying does not return in a more concerted fashion, the market may be vulnerable to increased short selling.

Comment: Money manager shorts look to be getting bolder. There is a danger of short-covering should prices break above $21,500 per tonne.