Last week, I found 5 negative divergence [6]s between equities and various data points and asset classes. This week I will give you just two. We all know in this game of hot potato --i.e., this market environment -- these divergences don't matter until they do at which time everyone rushes for the exits at once leaving most investors to wonder why didn't they pay more attention when prices were going up and up. Just a reminder: this time won't be different.
The first divergence is between copper, the industrial metal with a Ph. D. in economics, and the SP500. See figure 1 a weekly chart. If copper is a barometer of the global economy, then it is saying that "things" aren't too good. Since February, 2011 (the highs for copper), the yellow metal has made a series of lower highs. On the other hand Since August, 2011 (when the Federal Reserve averted a recession with Operation Twist), the SP500 has made a series of higher lows. The best thing that can be said for copper is that it is currently at trend line support. The SP500 is approaching all time highs. (Note to self: I am not sure if this is good or bad.) This is a noteworthy divergence and has me wondering if the US can go at it alone?
Figure 1. Copper (blue) v. SP500 (red)
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Since the start of 2013, the SP500 is up 11.5%. The i-Shares MSCI Emerging Market Index Fund (symbol: EEM) is actually negative by 2%. So what gives? Like copper, emerging markets topped out in February, 2011 and are severely underperforming here in 2013. Is this the effect of QE on US markets or reflective of economic fundamentals around the globe sans US? Or when will economic fundamentals (in the US and globally) catch up with the markets? The SP500 is clearly in its own stratosphere right now!
Figure 2. EEM (blue) v. SP500 (red)
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