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Copper/Bond Ratio: Bullish Indications

|Includes:DBC, DIA, SPDR S&P 500 Trust ETF (SPY), TLT

At Baseline Analytics TrendFlex, one of our economic strength indicators is the ratio of the price of copper vs. the price of the 30-year Treasury bond. A rising ratio indicates an increase in the price of copper, considered a key industrial metal and a bullish macro-economic indicator when rising. A decline in the Treasury bond price (and hence an increase in interest rates), is another reinforcement of economic growth. See the chart below:

Being such a significant industrial metal, copper is used in many facets of the industrial economy, such as housing. The ratio has recently stretched above its 200-day moving average (see note on right of chart). At the same time, bond prices appear to have peaked (see the blue line at red arrow) as the price of copper turns upward (green line).

Note the surge of this ratio above its moving average in May 2009. That move followed the bottoming of the S&P500 two months earlier. Fast-forward to today: although the breakout above the 200-day moving average is not yet convincing, the RSI of the breakout peaked above 70, indicating a potentially bullish trend change in the ratio. That may be an indicator of how overbought bonds are today, as well as an early indicator of the industrial metal's strength and hence potential economic strength.

The Copper/30-Year Treasury Bond ratio is one of many indicators that comprise the Baseline Analytics TrendFlex Score. Click here to learn more.

Bob Palmerton

Stocks: SPY, DIA, TLT, DBC