Copper, Emerging Markets, The SPY and Your Money

• Posted by Greg Harmon
• on October 19th, 2011

Copper is often watched as a gauge of economic activity. And measuring it against the US market and emerging market activity can give a view of what is happening both inside and outside of our borders. So what is it saying?

The chart above is a ratio chart of the Copper ETF ($JJC) against the S&P 500 SPDR, ($SPY). It had been in a long rising channel for over 2 and 1/2 years until falling out of that channel 4 weeks ago. Since that point it has been consolidating in a bear flag with the indicators, Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) indicator, supporting more downside. The volume on the bear flag is also starting to get low and it is printing a series of smaller candles. This ratio looks to be heading lower indicating Copper losing strength relative to the stock market. A forecast for declining domestic economic growth with supportive fiscal policy (read inflation).

Copper ($JJC) measured against foreign markets, shown above against the ETF $EEM, paints a similar picture. It has fallen out of the rising channel with technical indicators supporting further weakness. So Copper is also losing strength relative to Emerging Markets. A forecast for declining economic growth their as well.

The ratio chart of the $SPY against the $EEM completes the circle and does not really present any surprises. This chart shows a rounding bottom and relative strength of the US Market against Emerging Markets growing. You might expect that the US has greater resources (read borrowing power) than Emerging Market to deal with the slow down forecast by Copper.

But what does this mean for the world economy with real resources seeing a global slowdown and Developed Markets able to do more to protect themselves than Emerging ones? Spend some time thinking about this. There are implications for the US Dollar, Exchange Rates, Interest Rates and Inflation. It is your money. Where and how should you be protecting your wealth? Don’t win in the wrong place. Think about and understand the bigger trends. Share your thoughts in the comments stream.

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The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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