Dr. Copper's Deja Vu

In the last two days, Spot Copper prices have broken below a three-year up-trend line and as Stone McCarthy notes, continue to extend their worrisome divergence from stocks, "this has been one of the primary pieces of evidence [they've] been using to make [their] case that the U.S. equity market is in the final stages of an impulsive rally off of the November '12 lows." They go on to note that, "Due to the fact that copper so closely measures the "pulse" of global economic activity, the tendency for copper to lead equities at market tops and bottoms is something we've covered many times in our writings over the years. This time around, unprecedented efforts to stimulate the domestic economy have left many uninformed investors blind to the weakness that is being experienced in what is seen an important engine of global growth, emerging markets." Every market cycle is different, with leading divergences by copper prices lasting anywhere from a couple of months to several years. The last time the divergence between copper prices and the S&P 500 was as long lasting as the current cycle was prior to the S&P's 2007 price top....

 

Copper has broken a three-year uptrend line...

 

and the current divergence is the greatest since the top in 2007...

 

Charts: Bloomberg and Stone McCarthy