Saturday, June 23, 2012

Dr. Copper says watch out below

The dislocation between US equities and Brent crude (discussed here) is by no means unique. A very similar picture is developing between S&P500 and copper. And as with oil, one can blame it on supply fundamentals, but the reality has more to do with a sharp deterioration in global demand as world economies slow.
Miller Tabak : - Traders often refer to the red metal as Dr. Copper because it is the only one that has a PhD in economics, and tends to be a great leading indicator of economic conditions. If you follow that thesis, and go by recent trends, Copper could be telling an ugly story for equities.
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Copper first bottomed in December 2008, while the S&P waited until March 2009. In 2010, Copper made its low for the year in June, vs. July for the S&P. The 2011 peak in Copper was February, vs. May for the S&P. 2012 is almost identical to last year, with Copper again topping out in Feb., while the S&P made its high in March. There are no guarantees that Copper will make a new low for the year, and even if it does that equities will follow, but it certainly bears watching given the historical significance of the relationship.
Copper vs. S&P500

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