Follow Copper

My apologies for not putting up a post last night – the WiFi at my hotel was intermittent as I was surrounded by lonely Silicon Valley nerds who were straining the network by downloading p0rn. After trying several times I eventually had to admit defeat and decided to catch some sleep instead.

Copper continues to shine and as many of you know it has been leading equities without fail.

As it’s been a while let’s take a look at our trusted copper/SPX correlation chart:

As you can see copper has continued to lead equities every step on the way. The snap back in November was no exception and it is now pushing into higher highs. Now, I have made it a point in the past that I am not a correlation trader. But having watched this chart for years now I feel that fading a strong directional move in copper on the equity side is probably pretty bad medicine. What we want to see here is the opposite in the form of a distinct divergence – meaning copper turning down with stocks busting higher. Those are the types of setups to look out for once we come out of the Christmas season and are pushing into early January.
[amprotect=nonmember] Daily Zero chart and related commentary below reserved for Zero subscribers.
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Many of you have asked for a peek at the daily Zero and I’m happy to oblige. However the recent swings are a bit puzzling quite frankly. If you look at the smoothed panel you’ll see a strong push higher followed by a sudden drop on Tuesday. This is quite a shift in momentum and one we have not seen for quite a while now. So it’s indeed possible that the fuel is running out here – but at the same time copper continues to push higher.
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Bottom Line:

So after sleeping on this my POV is that there is no reason to panic – divergences usually build up slowly on the DZ, meaning if this is for real we’ll see a continued down signal while equities bust higher or trade sideways. The sweet spot of course would be to see divergences on both copper and the DZ.

Until I get a more pronounced divergence on the DZ I intent to continue following copper – it’s yet another reliable medium term chart that has been very consistent in offering us clues as to what the directional bias for stocks will be for the near term future.

Cheers,

Mole