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Heads Up/ Copper VS. S & P 500/ Be Aware


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More doomsday gloom, just an FYI. Copper Waterfall Suggests Drop in S&P 500 is Coming – Here’s Why

Dr. Copper, as it is affectionately known, has been a longstanding barometer of economic growth and historically has shown a high positive correlation to the S&P 500. However, over the past several quarters there has been an increasingly large disconnect between the performance of major indices and the price of copper. With copper hitting YTD lows it suggests that there is less demand and that growth is slowing down and this, in turn, forecasts lower levels for the S&P 500. Words: 420

So says an introduction to an infographic/article* by www.VisualCapitalist.com as posted initially on seekingalpha.com under the title Trading Copper And The S&P 500 Disconnect.

This post is presented compliments of Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), www.FinancialArticleSummariesToday.com (A site for sore eyes and inquisitive minds) and the free Intelligence Report newsletter (see sample here – register here). The post may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. You can also “Follow the munKNEE” daily posts via Twitter or Facebook. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.

The post is as follows:

Below is a 3 year chart of the SPX and copper [Go HERE for the latest copper prices].

2326631-13654471889027312-Visual-Capital

5 year LME warehouse supply levels have rocketed to highs in a matter of months, which illustrates a slowing demand on a macroeconomic basis at current prices.

2326631-13654472574330368-Visual-Capital

To further demonstrate the bearishness in the copper sector we point to the CME CFTC reports to indicate high levels of managed money short positions and low accumulation levels of futures contracts by the producer/merchants.

2326631-13654472980145152-Visual-Capital

Copper miners and producers, as well as precious metals miners and producers, currently face adverse economic conditions in the form of higher production costs and tougher financing requirements. On a YTD basis, the COPX has outperformed when compared to the GDX and SIL. On a 3 year weekly chart the next support for the COPX is 9% away at $10.00.

For those that believe the housing market has bottomed, we would look to the manufacturers of copper products such as Encore Wire (WIRE) instead of the miners of the metal such as Southern Copper (SCCO) and Freeport McMoRan Copper & Gold (FCX). The miners are a cyclical play and there is no reason to believe in initiating a purchase other than to be underwater in the position for the short to medium term.

Copper has been trading in a range of higher lows and lower highs for roughly 5 quarters; this wedge formation (see graphic below) has a mid-point of 3.60. One can draw a smaller wedge that shows a technical break of 3.50 to the downside with an initial target of $3.00. Covering the position between the October 2011 low ($3.00) and June 2010 low (2.72) nets a return of roughly 15%.

2326631-13654473356247027-Visual-Capital

Bottom line: Copper is an industrial metal that is an excellent indicator of the current macroeconomic climate. We highlight the low demand via LME warehouse levels and high levels of managed money short positions in addition to the technical setup to provide an entry to forecast that copper prices will proceed lower over the short to medium term. Use copper futures or the ETF.

 

 

 

 

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Conventional worldwide energy is the investor fall back. Whatever happens here does not have total impact on global markets.

 

I am rolling big time since 09 on conventional resources.

Glad you are killing it,

 

I have made a few bucks on these recent trades in the resource area,

MKRYF up 18% in 5 months

KOG up 32% in 2 months

DTHRF up 38% in 5 months

SYRG up 43% in 5 months

 

Started with $2k on each trade,

Still sitting at 95% cash, am having a problem overcoming my paranoia with the markets. After being completely broke 10 years ago we have made a nice nest egg. A nice large correction and we will be all in. A good 100% run and we will be set for retirement.

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Copper is probably the most valuable industrial metal, and a major indicator of global well being. A higher copper price means more manufacturing, more consumer demand, and ultimately a higher level of economic growth. It says quite a bit about your level of overall economic understanding to point this out.

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