Saturday, January 1, 2011

SPX VS Copper

The chart below is a one year weekly of the SPX VS Copper (HG).  Both have correlated very well with HG typically giving a 1-2 week signal of SPX direction.  Lately though these two have traded identical.  In looking at markets right now an argument can be made for a correction, even a minor 3-5% pullback.  The one very troubling hole in the correction argument though has been the price action in HG.  It has methodically moved higher and higher taking out prior highs as if they didn't exist.  There are a few possible explanations for this move:

1 - Global growth is solid and the demand for copper is very real.  At these levels I don't see that argument being very real.  Real GDP in the US alone is still below pre recession levels.

2 - USD weakness, QE which has bled into every commodity is doing the same in copper.  The only problem personally I have with that argument at these levels is the price action in oil which has been more volatile and China and other countries efforts to control the flow of USD funded liquidity.  Additionally the USD has been range bound the past few weeks while copper continues making new highs.

3 - Market manipulation.  Copper is well known for it's correlations to equity markets as a leading indicator of future price action.  It's hard to fade the SPX when copper keeps hitting new highs.  Is JPM's copper position in any way associated with its massive short silver position or is it related to the new copper ETF to be launched soon?

Definitely something to think about as we venture into the new year.


No comments:

Post a Comment