This time last year was the initiation of the great (99% increase) LME 3M zinc bullish trend. Tumbling prices had reached 1445 USD/ton on 01/08/2016 in spite of the extended fundamental comments about the extinction of mines. The reason why the bullish spark waited so long is the key to our analysis today.
It was only the Hedge Funds (in LME Commitment of Traders report mentioned as Money Managers) entering the Zinc complex with large long positions that time.
The price touched 2985 USD/ton on 28/11/2016 and then retreated.
Now the correlation between the LME Zinc COT Report Money Manager's Long Positions and the zinc price is increadibly remarkable. That correlation takes us to a point in space where technical analysis and fundamental analysis have no gravitational force.
After Tuesday's COT report, we are beginning to see some signs of divergence between these highly correlated items. Long positions retreating where as prices increasing which tells us that a correction might come in the near term.
Having underlined this point, we would like to draw your attention to the peak point in LME Zinc COT Long Positions chart. The peak point (in May 2015) of maximum held long positions ever was 100.171 contracts. Now latest LME report states a position of 81.039. So Zinc bulls does not have to worry. Although a correction may be expected in the near term, there is still some room to go until COT number touches its previous peak.
After a superficial evaluation, where can this roughly remaining 20.000 long contracts take the Zinc price to after a slight correction? We assume markets sometimes work with psychological resistance and support levels and at this point this would be 3000 USD/tonnes.
