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Dr Copper shows the way for stocks

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High grade Copper (AKA Dr Copper - because it has a PHD in Economics...) often preempts stock indices moves (alas not always, not crucially in 2011 but that has as much to do with central bank interventions as anything else).

 

The 4 hour chart seems to be showing a Flag break to the upside (TBC) but if this does break and then breaks the near term resistance levels then stocks may not be far behind...

Always worth checking this out even if you don't trade it.

Thoughts as ever keenly sought

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@Mercury, it is possible that Copper could continue its downwards path. That is not out of the question. An interesting one and I for one cannot even attempt to call whether Copper will break to the upside or continue its downward trend.

 

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Agreed @TrendFollower and nor am I.  What I was suggesting is that the buoyancy on copper is often an indicate for stocks to follow, and similarly in reverse.  So only need to watch it not call it.

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@Mercury, yes I understand. Have a look at my past Dr Copper articles from a year or so ago on IG Community. 

Also there are years when stocks simply do not follow Copper so it is not always the case. Though I accept it has happened more years than not over the past 10-20 years. However, there have been years in that period when it has not happened. 

What we do not know is whether it is one of those periods now when it does not happen?

 

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A brief update on what HGC is doing.  Basically it is in consolidation (Flag formation) since the recent relief rally phase.  The breakout of this flag will determine the next phase but I believe it will be a second stage rally to complete an overall retrace move that will then turn a drop heavily.  I am currently anticipating this to align to stock indices movements and any top out on HGC to be indicative of Stocks top out (or retrace turn, depending on the eventual resolution to stocks).  If the Flag is valid it suggest a top out of the retrace rally in the 31,000-31,500 area (around about the Fib 76/78% area.  This could suggest a strong Stocks rally phase coming up.

HG-Daily_261018.thumb.png.27cc1768faaa8942018cd089a477bb90.png

 

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@Mercury, I do like and appreciate how you combine charts and explanations to support your charts in your posts. I understand that it requires time and effort along with knowledge and experience of course. 

It will be interesting to see if there is a strong 'equities' rally phase coming up. To offer a balanced view on this one needs to understand the Copper prices have dropped around 17% from June 2018 highs. As you will appreciate, a strong US dollar, will hurt Copper prices as they become far too expensive for other countries around the world to purchase them. 

Just like the stock market is a future discounting mechanism say around six months into the future in relation to share prices, Copper prices reflect something similar for the world economy. To me lower or declining Copper prices could reflect negative sentiment for the world economies.

One must also appreciate that Copper is heading for its first yearly decline in prices since 2015. There are plenty of economic concerns around the world at the moment. The US imposed tariffs have not helped. It is stated that Copper has predictive powers and reported that investors are not very optimistic about the outlook for equities.

I personally will let the price action of Copper tell me the 'story' and it will tell us all a story. 

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HGC remains in a Flag consolidation formation after a fake breakout down was pushed back inside the Flag (very bullish in this case).  We could see another fall towards NFP tomorrow and if we see a rally on up and through the upper line this will, I think, support a stocks rally and USD fall.

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Just to update on the above, the market has indeed regained the upper Flag line and broken through, remains to be seen if this is confirmed with a close on the daily candle above but the force of the move is significant and after the bullish fake break below it bodes well for an ongoing rally, which can be a precursor to a stocks rally.  On the Daily I am looking at a retrace termination at Fib 62% or 76/8%, which could come just before a termination of Stocks rally, one to watch.

HG-1-hour_021118A.thumb.png.1bdc09e9a88cfa17389b86a9b481fa8a.pngHG-Daily_021118.thumb.png.9c7d88e87bcc070fff702f1fe47cf3cc.png

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Copper still stuck in a consolidation Flag.  Could a bounce off the bottom signal a retrace and rally in stocks?

Could be interesting to watch how Copper goes if US stocks do go into retrenchment...

HG-Daily_081118.thumb.png.71bb44225860629536c68792af6f4e97.png

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Been a while since I looked at Copper.  The consolidation I was looking at back in November 2018 didn't spark a rally until there was a fresh lower low but since then the rally I was looking for has occurred and interestingly it has done so in a rising triangle formation that is consistent with a Pennant.  Last week we saw a strong bounce off the lower line, which makes me thing another high is on the cards and the trajectory of this looks set to hit the Fib 62% zone in May.  Long term there are 2 main scenarios of which I prefer the second, which is a deflationary collapse of prices back to the floor.  In the meantime the interim roam map targets are:

  1. a hit and turn bearish from the Fib 62% zone around 30,000.
  2. a breakout of the Pennant
  3. A break through (or rally from for scenario 1) the 22-23,000 zone around the long term supporting trend-line, after which we should know which scenario is in play. 

Whatever way the end stage scenarios play out a rally to my first interim target and turn into a bearish phase is indicative for stocks following suit.  One to monitor is not to trade.

HG-Weekly_040519.thumb.png.8fdd81225e17b38f84b7eddabc71c34a.pngHG-Daily_040519.thumb.png.e0833470c1971e65e8f293d2be0393e5.pngHG-Monthly_040519.thumb.png.715181e69e6c10687021dc27ebee586f.png

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Not a triangle but possible a parallel channel with a turn today off the Fib 62%.  A run up now in concert with stocks will leave me tracking to see if major turns occur when Copper reaches it's next Resistance point at circa 30,000.

HG-Daily_150519.thumb.png.74638acc9d0acb2599307b5024e8efc2.png

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Copper has continued to descend.  Yesterday it bounced with a descent spike and came back inside another possible lower trend (Flag) line, still unconfirmed though.  On the Daily chart the spike bounced just short of the Fib 76% on PMD and although another leg down to the bottom of that support zone is clearly possible a rally from here would in theory be bullish for stocks, in fact if this did happen and price then once again moved back inside the lower Flag line it would be even more bullish.

In addition the non commercials COT data is net -22k as at last Tuesday.  The non comms have got this market spectacularly and consistently wrong at major turns (naturally enough as the insiders are the miners and refiners - i.e. the Commercials).  A -22k level is a strong case for a rally of a temporary nature, such as another leg up inside a Flag. 

One to watch as next week progresses.

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Just updating this older thread for my post on the supercycle thread.

Interesting analysis @cryptotrader but not quite sure what to make of it.  The individual commodity patterns are not moving together, sometime Oil peaks around the aggregate top and sometimes it is something else.  I am not convinced that all commodities move alike, I think agri and livestock has very different drivers to base metals and Oil.  Also looks like they have lumped precious metals in with base metals, which is not correct in my opinion as PMs are a separate category (Silver is constantly argued on that, is it a precious metal or a poor industrial metal?  The price charts say PM so that's that for me).

I can't speak for agri and livestock, I only know that things like coffee and rubber are too cheap for farmers to earn sufficient income to keep them in the business.  Others may wish to chip in on the discussion on agri etc, but to me Oil does appear to be bearish, although there is a case for a short bearish phase followed by a strong rally (See chart below).  I have previously shared my bullish stance and analysis on PMs so won't reprice that again here.  Copper is an interesting one.  I am seeing a bearish phase in progress and it could breakout of of long term support into a massive deflationary bear move, which would align with a major deflationary recession.  Alternatively, if the recession (which is in my view a certainty, just a question of when the markets crash in recognition of the fact we are already there) is mostly a financial one (i.e. Central bank policy and Fiat money printing driven) then we may get a flight to safe haven of "real things", in which case it will not just be precious metals that appear precious.  This will be a hoarding mentality that could also drag other necessary commodities like agri up too.

In the end I prefer to look at each market and decide on its intrinsic merits rather than trust to notions of commodities as having a group effect.

Brent-Monthly_080819.thumb.png.6adf75bd219e819b28df9b6f4e6b32d8.pngBrent-Weekly_080819.thumb.png.62ea1e954d2b63c12ae098d38e71baac.pngHG-Monthly_080819.thumb.png.70240f8c7d920d3a8e5df910f5677da9.pngHG-Monthly_080819A.thumb.png.c794fb865bf1152bc67a7c58f4fd3c61.pngHG-Weekly_080819.thumb.png.ac6d1ecd8bbdd29cf0247b3f6f1fa41e.pngHG-Daily_080819.thumb.png.9f2415df896ee7312ee886661e58b359.png

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Update to the above as follows:

Looks like that retest I was looking for did occur and failed sending the market down to make a lower low so far yesterday.  Hard to say this is a correlated move with everything that happened on Friday and on the weekly chart there is still plenty of support just below where price currently is so could easily get a bounce, maybe to retest the flag line but the classic road map here is for price to drop through to the next level.  This would mean a test of the long term supporting trend line and this would be quite instructive in terms of which resolution to the over exuberant Bull we will get.

3 scenarios:

  1. Deflationary recession - copper drops through the support line and reverts back to mean/normal levels
  2. Inflationary - flight to "real value" - copper soars
  3. The central banks and politicians get their way and crazy policies become off the charts mental and copper soars like it did in the 2011 rally

Honestly can the market really buy the never-ending story again?  I don't so recession but which type?  Copper might just be the tell.

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Looks like a break down bearish move on HG Copper is on.  After a break of my lower channel (or flag) line we got a perfect failed retest and then a series of lower lows and lower highs.  This morning we got a break of the recent low, which would seem to presage a faster drop now to the next support zone around 22000-23000.  This is a crucial juncture for Copper in my view.  Here we would expect to see a general market decision point: do we rally hard into an inflationary type resolution to the wider economic malaise or do we crash into a deflationary resolution?  Could we even see a deflation everywhere except commodities as investors search for real value in a world where financial engineering is collapsing?  There are plenty of people pushing multiple resolution scenarios, including the usual and always wrong "don't worry, this time it's different" scenario.

One thing seems certain, after a period of sluggishness the markets seem to be coming alive today, wonder what US open will bring after a long weekend and a start of a new month...  Of course the end of Sept will be more interesting perhaps, being a quarter end for the Financial organisations.

Just to advise, I am Short Copper and Oil (see my previous Oil post).

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Could Dr Copper be lighting the way for stocks?  Traditionally this commodity was said to act as a leading indicator for stocks in particular and the economy in general.  Since the 2011 commodities highs though there has been a disconnect.  One thought is that commodities will get a hell of a lift from a period of hyper inflation brought on by all the QE and low rates as financials, which have been over-inflated already, crash .  Another is that a deflationary recession will send commodities crashing like everything else BUT if you look at many commodity price charts you will find them back to significant lows.  I am expecting HG Copper to retest its long term supporting trend line before the resolution to this becomes clear.  My bias has moved from the deflation scenario to the hyper inflation one, as this makes most sense across all the asset classes and in the economy in general, although on main street, if we do see hyper inflation of consumer prices, I would expect it to be short lived as this will only fuel the recession, which as many economists have been saying is being propped up by the consumer.

That's all longer term though, what I am seeing now is a potential rally in copper in a wave B (blue) that could conclude around the Fib 62% (early days target, pending later price action confirmation), which would also be a Wave C / Wave A equivalence.  Such a turn of events could then help pin point the end of the Bull in stocks.

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