Copper Drops Again, May Be Sending A Warning To Global Investors

Includes: DGT, JJC, SLV
by: DoctoRx

The price of copper in U.S. dollars has often led the U.S. and global stock markets. It clearly has done so since last 2007. This can be seen by comparing, a FINVIZ chart of "Doctor Copper" with a chart of the Global Dow.

Timeframe: 5 minute | hourly | daily | weekly

Chart forSPDR Global Dow ETF (<a href=

Ever since copper bottomed several months ahead of the Global Dow as well as the DJIA, it has led the global stock markets. Copper rebounded faster but has put in an absolute peak in spring 2011, as did the Global Dow. We now see what may be an important divergence supported by silver's action. Since peaking in 2011, copper has made a series of several lower highs on each rally attempt. Tonight, in Asian trading, it is down about 1% to a new low below the fall 2012 low. Yet the Global Dow is at a rally high-- but it remains in the same sort of bear trend as copper: both are below its 2011 high.

For now, Mr. Market is suggesting that copper has come into oversupply. In the past, that situation has often been followed by a sell-off in stocks.

The difficulty that gold and silver prices have had in moving up since peaking in 2011 is also consistent with worsening liquidity. Silver is a bull market metal. It had such a tremendous run into its 2011 peak, few have worried that its bear trend was a harbinger of oncoming global recession; rather, stocks have played catch-up with silver. But as the song goes, beware if it starts to descend anew. There's a similar situation with gold, though gold is tougher to analyze, as it is the only physical commodity that is traded on currency desks in banks, not the commodities desk. Silver's chart shows a triangle/descending wedge that has formed beginning with congestion in late 2010. Support has held, so far. This is often a bullish pattern, but nothing is guaranteed.

Timeframe: 5 minute | hourly | daily | weekly

The economic troubles in much of the developed world, but not the U.S. economy, would appear to be implicated in copper's fall in price. When financial and economic troubles in Asia began in 1997 and continued into 1998, joined by Russia's bankruptcy, those troubles lowered inflation in the U.S. and left the U.S. stock market as the main game in town. In addition to millenial fervor, I believe that this dynamic was very much in play in the late '90s. Something similar may be going on now.

Thus I am concerned that copper's price action may be signaling a further economic and financial downturn in Europe. And given the critical importance of China to copper's action, we may wonder if the markets are hinting at trouble in China's economy, as well.

A renewed downturn in foreign economies and their stock markets would likely bring on profit-taking in the U.S. markets, but as occurred in fall 1998, if that occurred, it might very well be another pause that refreshes.

With the American economy once again stronger than many of its G-20 fellow members, and with so much economic weakness elsewhere apparently not affecting our economic prospects, there are echoes of the late 1990s in several ways.

Anything, of course, can happen. Copper could turn on a dime, for example, and begin an astonishing surge to new all-time highs. Silver could surge with it, and global stock markets could regain a lot of their shine. Thus the divergence could be resolved in a happier manner than I focused on above.

I'm watching Doc Copper closely now for clues to the global macroeconomic situation.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Not investment advice.