Post by jeffolie on Nov 18, 2013 12:58:45 GMT -6
Nov. 15, 2013
Is Dr. Copper a liar?
by Mike Paulenoff
Back in the old days, "Dr. Copper" was used by economists and market watchers as a barometer of economic activity, which in turn would provide clues and information about the underlying fundamental strength of the equity market. But with copper continuing to make lower lows, while the S&P 500 is making higher highs, one of the two is setting up for a major reversal.
If we compare the cash S&P 500 (SPX) with copper since the end of the last major stock market correction, on Oct. 4, 2011, we notice that both the SPX and copper prices tracked directly for about one year into the September 2012 highs.
But that's where the two markets started to diverge.
Since September 2012, copper has rolled over into a series of lower highs and lower lows that represents a big distribution pattern. Meanwhile, the SPX has continued to carve out a wickedly powerful uptrend defined by its higher highs and higher lows.
Dr. Copper looks sick — and needs a doctor — but according to the SPX, everything is wonderful. The world is blissful.
Then again, which market is reflecting "the truth" about the underlying fundamentals? If it is the SPX, then we should expect a major upturn in copper demand, and in copper prices. Conversely, if copper speaks the truth — and prices continue to deteriorate, then the equity indices in general, and the SPX in particular, are in for a rude awakening and a forthcoming major downside reversal.
See chart illustrating technical pattern of the SPX and Copper
www.marketwatch.com/story/is-dr-copper-a-liar-2013-11-15