Open interest in copper has been rising since early December 2008. 


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Until recently, the rise in open interest (black dotted line) was driven by commercial traders (blue line in chart below) as opposed to speculators (red line). The latest spike higher in open interest over the past month has been met with commercial selling and speculator buying.

Last summer, a similar scenario played out, with open interest spiking higher over the summer while commercial traders were net sellers (and speculators net buyers). If history repeats, we should be on the lookout for a correction in copper, as the latest spike in open interest has come from speculator buying and commercial selling.

One of the stocks that's been a popular trade during the past few months is Freeport-McMoRan (FCX). Freeport is probably the best-run copper miner in the world, but ultimately it's a leveraged play on copper. I’d note that technically, Freeport has done nothing wrong (yet), but the latest advance has come on much lighter volume, which is a red flag.


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The ratio of Freeport’s stock price to the price of copper (red line) has been rising since the low in December. This ratio correlates well to the general trend of Freeport’s stock price (white line). Should the ratio break the uptrend off the December lows, I'd consider it a very big red flag and a possible trend change. 

 
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Summary

Copper has risen over 50% off its lows in December, but is showing some early warning signs of exhaustion in the CFTC Commitment of Traders reports. Freeport is one of the most loved stocks in the mining sector, and is up about 160% off its lows (as I write this).

I'd be on the lookout for a good short entry spot should the ratio of FCX/copper break down, as the smart money seems to think copper may have already seen the meat of its bounce.