A Glance at Copper and China

• Posted by Greg Harmon
• on July 16th, 2014

Copper and the Chinese market are thought to go hand in hand. Like any Wall Street rule of thumb though, it works sometimes and not others. There was a long period from 2002 until 2006 when this one gained popularity. But that quickly went by the wayside from 2007 through 2010. But what goes around comes around, as they say. So is there something worth watching going on in these markets?

Yesterday in this space I noted that Copper was starting to look attractive for a trade here. And with the daily charts of the Shanghai Composite moving up through short term resistance, there is reason to watch. Here is why.

The chart above shows the weekly ratio of the price of Copper to the Shanghai Composite. The actual level of this ratio is not important. But notice that the ratio has been in a very tight range for 3 and a half years. There has been a strong correlation between the two markets. With Copper starting higher the Shanghai Composite will need to rise as well if the relation ship is to hold. There is nothing that says it will. As noted earlier this relationship has fallen apart before. And there are some technical reasons why it might break again in favor of Copper. The confluence of the SMA’s can often be a catalyst for a move, with the longer trend of the ratio upward.

There is no plan of action at this point. But these two sleepy markets are showing signs of life both separately and together. Time to start watching.

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