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Watch Copper
Over the past couple of years, the strong correlations amongst equities and between equities and other asset classes such as emerging markets and commodities has become rather tight. Courtesy of TraderMark at FundMyMutualFund and FT.com/alphaville, ConvergEx has the following note out on market correlations: “The difference between investing in Emerging Markets equities, Developed Markets equities, and High Yield bonds is now effectively zero.”
Looking for a place to hide? According to this table, you won’t find it within the different SP500 sectors, emerging markets or developed foreign markets. These sectors are over 90% correlated with the movements in the SP500. Everything moves together.
Table 1. Correlations
However, copper seems to be the lone exception over the past couple of weeks. The next chart is a weekly chart comparing the S&P Depository Receipts (symbol: SPY) to the i-Path DJ AIG Copper (symbol: JJC), which is an ETN that tracks the price movements of copper. JJC is the orange line and SPY is in blue. There is very nice correlation between the two going back to the 2008 top.
Figure 1. JJC v. SPY/ weekly
Now look at to the recent price action. This past week, SPY has gone up while JJC has fallen (see ovals on chart). What’s up? Obviously, SPY is indicating everything is alright in the world, and JJC (or copper, the metal with a Ph.D. in economics) says it isn’t so. I guess time will tell.
Figure 2 is the weekly chart of copper that I have been showing since August 14 when I wrote that “Dr. Copper and Global Economy Look Vulnerable”. Copper remains in a bear market as long as price remains below the 4.1263; support is at 3.6971.
Figure 2. Copper/ weekly
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This charts explain very well all we need to know about this. Asigurari locuinte
Options expiration driving markets. Correlation on hold.
Do not doubt the robots?
Thought at one time fairly recently it was said on another site that,there was a correlation with copper and the price of silver in my observations I do not believe this is true at least anymore.
Have not had much time to research that,just a curiosity when seeing this article which is appreciated.
Copper prices are very significant to Chinese Property Developers who have purchased copper & use the physical as collateral for their loans - I do not know at what price point the copper collateral would be impaired, however, at $3.69 I cannot believe that margin calls would become prevalent - then we would wait for some other country to rescue Europe...and China for that matter!
anyone notice how cheap DBB Puts are? Yes, I own them. Look at their price action in 2008.
a copper trite a day, keeps the kings tax collector away
I get the message: short term, this is a good trade. But longer term than a few weeks, how does this look?
There are 25-60 year reserves before 'peak copper' comes. 25 years before peak oil, give or take a year, the price of a barrel of WTI was maybe $10. So, it could be years before copper prices take off. And the longer we wait for a real upswing, the less oil there is. Less oil brings less economic activity. Less manufacturing. Less need for copper.
25 years from now, we'll be bashing whatever copper there is into crude axes to fend off the mutant hoardes attempting to steal our tactical bacon.
less oil, higher price. higher price oil, higher price copper as cost go up to dig it out of the ground.
is the co-relation broken or the S&P the last to learn?
And get a green wrist?