Copper - A leading indicator on the economy?

[phillo]

This chart suggests price is breaking down, I wonder what that means for the world's economies ? 

[Caseynotes]

11 hours ago, elle said:

This chart suggests price is breaking down, I wonder what that means for the world's economies ? 

Good piece on copper here from CME focusing on it's strong links with the Chinese economy and the very low current implied volatility.

"Copper closely tracks growth in China, yet copper options prices tend to be closely related to U.S. monetary policy. How will Fed rate cuts impact the metal? "

https://www.cmegroup.com/education/featured-reports/coppers-options-paradox.html?utm_source=twitter&utm_medium=social_post&utm_campaign=economic_research&utm_content=20190618_hp

[trade247]

Certainly looks like it could be coming down to 55 flat. If that does happen then we could be in seriously bearish territory and Dr Copper should start getting some serious attention.

[dmedin]

Ten point spread?

[Guest phil]

Not directly correlated but related to the general meta of this thread.

US stock volatility has eased considerably in recent days, leading some derivatives traders to bank on a stable period. Think some form of low vol option trade going on. Whilst some major indexes are in the rebound zone, the Cboe Volatility Index (VIX) has fallen by 20.8% to 15.80 in the past week. Things are mixed though as US equities have seen some positive movement, Asian markets were down on 21 August following recession concerns; Hong Kong’s Hang Seng Index dipped by 0.14%, while Japan’s Nikkei was down -0.28%.

[Guest phil]

Copper is flat in this period. 

On 21/08/2019 at 15:45, dmedin said:

Ten point spread?

Looks to be 10 points on a 5720 price, compared to FTSE 1 point on a 7200 price. Not great when you look as it side by side. Assume the copper futures book is no where near as liquid as a leading world index though. 

Can't see bid offer of HG1 or the LME quote either but someone at IG can please? https://www.bloomberg.com/markets/commodities/futures/metals 

[TheGuru12]

https://www.zerohedge.com/news/2019-08-24/copper-plunges-115-week-low-global-macro-deteriorates

 

Could be. 

[phillo]

saw this on twitter

[Mercury]

Copper may have completed a wave B relief rally, with a hit on the Fib 50% and a clear A-B-C pattern.  A drop from here continues the deflationary trajectory, would weigh on economic indicators and bring up the crucial test of whether the market situation will resolve with a deflationary recession or an inflationary one.  Falling copper prices will nix any emerging markets stocks rally and likely put a dent in the majors as well.

[Mercury]

Dr Copper is showing a bearish set up for me.  After the potential wave B top out we now have a 1-2 with the turn on Wednesday, similarly to stock indices and a fall way, more bearish than on stocks, which may well prove to be an indicator for where stocks will go next.  Certainly falling copper (and other hard commodity prices) is bearish for emerging markets and China... 

[Mercury]

Dr Copper is showing a bearish set up for me.  After the potential wave B top out we now have a 1-2 with the turn on Wednesday, similarly to stock indices and a fall way, more bearish than on stocks, which may well prove to be an indicator for where stocks will go next.  Certainly falling copper (and other hard commodity prices) is bearish for emerging markets and China... 

[CharlotteIG]

On 01/12/2019 at 16:19, Mercury said:

Dr Copper is showing a bearish set up for me.  After the potential wave B top out we now have a 1-2 with the turn on Wednesday, similarly to stock indices and a fall way, more bearish than on stocks, which may well prove to be an indicator for where stocks will go next.  Certainly falling copper (and other hard commodity prices) is bearish for emerging markets and China... 

@Mercury - up slightly on Monday but down yesterday and today. Good spot! 

[CharlotteIG]

This is DailyFX analysis on Copper. where do you think it will go? 

[dmedin]

I predict that it will go up, down, up, down, up down, up down.

[trade247]

range trade until with market comes to its senses or trump/china make a proper call on whats going on.

[dmedin]

Trump?  Make a 'proper' call?  I don't think so. 

[dmedin]

Big specs increasing their shorts.

[Mercury]

4 minutes ago, dmedin said:

Big specs increasing their shorts.

I have net COT positions for non commercials around -33k, this is not significant in the current scenario.  The last significant up turn occurred in Aug/Sep on net -60k, which produced the current rally and has been unwinding ever since.  Early Nov produced the lowers net COT non commercial read (-21k) and coincided with the turn back down.  You would expect the net reading to be heading more negative as the market moves south.  The contrarian reading of this is that the non commercials are max net short when the market turns bullish and the reverse when the market turns bearish (at major turns).  Anything in between is trending.  We are missing last weeks data due to Thanksgiving so the picture is currently out of date.

[Mercury]

Possible turn to the downside on Dr. Copper at the Fib 62% level.  If this runs stocks could keel over.

 

[dmedin]

They're still short and started to get even shorterer ...

 

Edited December 12, 2019 by dmedin

[Mercury]

I was of the mindset that Copper would retest the long term trend line before resolving its long term direction.  We may be seeing some bearish signals on the Daily chart but this could be a short term move.  If I look at the longer term time frame charts the set up does look bullish, very bullish.  This is consistent with the reflation trade thesis and may signal a broad reflation of commodities both soft and hard.  There is a potential breakout of a monthly/weekly chart Triangle retrace phase to the upside currently in play.  We should see a retest of this breakout, which would then decide the matter one way or the other (although I would not be surprised to see a so-called hard retest, which is a penetration back into the Triangle before another breakout).

This is also consistent with a thesis of mine such that we may see runaway inflation (Central Bank manipulation driven) prior to a deflation.  In other words the hyper inflation and deflationary depression argument would be settled by both being right in turn with the hyper inflation triggering a reactionary deflation.

Normally copper is seen as an indicator of economic strength and therefore of stock market moves.  However these are far from normal times.  The commodity peak rally to 2011 coincided with only the first phase of a major stocks bull market.  The subsequent commodities crash did not produce so much as a ripple in the stocks bull, such extraordinary support did central bankers pump in.  Could a major spike in commodity prices, at a time when other economic indicators are trending towards recession, actually be the straw that breaks the camels back for stocks as their materials cost base grows uncontrollably and hits profits?  What would be the response of corporates to this?  Price increase to consumers (hence the inflation effect that would be swift and impossible for the central bankers to control); hiring freeze and eventually job cuts (labour is the only major cost companies have direct control of, other than investment of course, which is at rock bottom these days).  In such an environment there will not be spare capital for share buybacks (opps! there goes one of the major US large cap drivers...).

2020 could turn out to be anything but business as usual.  The Chinese have a curse, "may you live in interesting times!".  They may be writing books about this in time to come and for the open minded swing trader it could be both interesting and profitable if volatility returns across a broad spectrum of asset classes...

[dmedin]

It's picking up now.  Speculators upping their long bets

Edited January 15, 2020 by dmedin

[dmedin]

https://uk.reuters.com/article/uk-metals-copper-ahome/column-funds-buy-into-copper-as-trade-war-uncertainty-lifts-idUKKBN1ZJ1NB

[Mercury]

HGC turned at the Fib 76/78% off the most recent high.  If my alternative scenario (red A-B-C) is correct then this market should plummet for a while and may signal a bearish phase for stocks.

[Mercury]

Dr Copper is continuing its bearish phase and looks set to test that important juncture around 27,000.  If it breaks lower it could continue to front run stocks for a while.

[dmedin]

Looks a wee bit ominous 😱

[Mercury]

Copper did indeed hit the weekly channel line and wound up with a close below it.  No sign of this bearish phase abating and with other commodities also in the red and USD rallying it may be the much hyped reflation trade is postponed.  More crucially could sustained copper bearishness be signalling poorer economic activity, which might imply the recent stocks quiver on Friday is merely a precursor for a sustained bear phase?  With USD and the Yen both showing strength this would certainly seem to be a reasonable scenario to consider, at least short to medium term.

[dmedin]

Looks like Mercury you were right about the drastic decline in this case - let's count the waves (the drop at the end is wave C right?)

[Mercury]

26 minutes ago, dmedin said:

Looks like Mercury you were right about the drastic decline in this case - let's count the waves (the drop at the end is wave C right?)

Not sure where you are on this.  Can you attach an wave annotated chart?

[dmedin]

Can't get my head around wave counts, maybe after another 2 - 5 years' practice.