Inflation Expectation Tuesday What’s Doctor Copper Predicting For the Markets?

Copper is
often called Dr Copper as the metal is considered a bell-weather for the world
economy due to its close correlation to economic growth (used by many
industries, copper typically rallies when the world economy is growing).

Indeed, one
of the first signs that the market was going to rally rather than fall off a
cliff during the Euro Crisis Round 1 in June came from Copper. As the below
chart shows, the metal bottomed in June, preceding the stock bottom by almost a
month. Since that time, the correlation between stocks and copper has
strengthened to the point that today, the two assets are trading together on a
near tick-for-tick basis:

With that in
mind, today I want to focus on the metal for signs of what’s to come in the
markets. The first and most important item to note is that copper is coming up
against long-term resistance. A breakout here would indicate the “inflation
trade” is prepared to explode higher in a major way.

Is this a sure thing? Not necessarily,
copper has actually just formed a rising bearish wedge pattern in the last six
months. These patterns tend to be topping patterns which preclude sharp
sell-offs down to the base (in copper’s case 2.80 per pound) when broken. As
you can see, copper broke this pattern in early November.

This latest
rally has brought copper up to test the broken trend-line. A rejection here
would likely precede a sharp sell-off back down to $3.70 per pound. And if we take
out the downward support line (green line above) then we’re going down in a BIG
way.

Keep your
eyes on the Doctor, he may be flashing a warning signal to stocks.

Good Trading!

Graham
Summers

PS. If
you’re getting worried about the future of the stock market and have yet to
take steps to prepare for the Second Round of the Financial Crisis… I highly
suggest you download my FREE Special Report specifying exactly how to prepare
for what’s to come.

I call it The Financial Crisis “Round Two” Survival
Kit. And its 17 pages contain a wealth of information about portfolio
protection, which investments to own and how to take out Catastrophe Insurance
on the stock market (this “insurance” paid out triple digit gains in the Autumn
of 2008).

Again, this
is all 100% FREE. To pick up your copy today, got to http://www.gainspainscapital.com
and click on FREE REPORTS.

Comments

[Crime of the Century]

FYI for writers - it isn't bell-weather as in hurricane winds, it's bellwether, after the sheep (wether) who leads the flock. Per the dictionary:

a wether or other male sheep that leads the flock, usually bearing a bell.

PS - my plumber thinks copper is a monetary metal. His bill is persuasive.

[Temporalist]

I was going to point out the monteary metal argument as I just came across some posts about just that; copper as a monetary metal and people buying ounces of it in bullion form.

I think I saw articles linked on Max Keiser's site in responses.

[TooBearish]

Based on this long term Chart Copper above 4.00 targets 5.50 - Thanks JPM!

[John_Coltrane]

Drawing tangents to noisy price curves at arbitrary points to construct "trend lines" is yet another example of human's ability to see patterns whether they exist or not. 

[mt paul]

copper plated silver ....

bytches

[reload]

Exactly! When I saw the JPM Copper accumulation story, my first thought was that they are perhaps spreading against their nasty silver short.

[Dan The Man]

Why does copper run with equities?  Unless they're inflating at the same rate.

[ebworthen]

Good question, the same one occured to me.

Unlike gold, copper is more of a utility versus a currency metal.

However, the quantity is much greater so it is less speculative (i.e. - like the entire range of equities versus a sector or specific stock).

My guess would be that at some point the correlation breaks down as the equities become less valuable than the utility of the metal and its value as a commodity.

[Between The Lines]

Perhaps the more inflation we have, the more the correlation will break down as a commodity such as copper is more valuable than a paper asset.

[RockyRacoon]

That's too much correlation not to assume some causation!

[Minion]

The banksters are long copper and oil.  If the price of crude runs away they can simply dump contracts at market.  It has already been established that they do the FED's bidding via equity purchases after POMO's. 

If Blackhawk Ben wants to jump start the economy, all his PD posse needs to do is pump equities and dump oil / copper to get the wealth effect and avoid rising input costs.

The snake is already coiled:

http://finviz.com/futures_charts.ashx?t=CL

[Bearster]

I think the title of this article is exactly right.  Speculators have bought up copper on the expectations of "inflation".  But money printing does not have a direct connection to prices, especially the prices of things for which demand is falling.  Check out this XtraNormal video:

http://www.youtube.com/watch?v=v76PM6-4yGk

[honestann]

crash copper == crash JPM.

[David99]

China doesn't like higher copper / iron ore prices and will do maximum to stop future speculations

[David99]

It all depends on China. Since China is tightening, demand will be reduced and metals will drop

[akak]

The first and most important item to note is that copper is coming up against long-term resistance.

That couldn't have anything at all to do with the JPMorgue suddenly taking a controlling interest in copper futures contracts, could it?  I mean, what the Hell, it worked for them with silver ---- at least until recently.