Copper's All-Time COT Extreme: A Rare Commercial Capitulation Scenario

Copper's positioning has reached an all-time high in the Commodity Futures Trading Commission (COT) data, which goes back to 1995. This extreme reading is typically bearish, but a rare historical precedent suggests that it could be counter-intuitive.

In 2003, copper also reached an all-time COT extreme and continued rising, rather than falling. This scenario is known as commercial capitulation, where hedgers are forced to reduce their short positions due to margin pressure.

The current situation is even more stretched than the 2003 episode, with both Commercials and Large Speculators at record net positions. While this typically argues against blindly extrapolating the rally, it's essential to consider the possibility of commercial capitulation.