Dr. Copper Has Been Learning Mandarin

• Posted by Greg Harmon
• on March 21st, 2013

Copper ($HG_F, $JJC) has long been said to have a PhD in economics. That is because the price of Copper has been highly correlated to the US stock markets. The Performance Chart below shows how Copper has moved with the S&P 500 ($SPX, $SPY) over the last. A very tight correlation, until you hit the dark green line in mid February. At that point it flips nearly instantly to being inversely correlated. This has led to many experts expecting that the US Market is probably topping and about to reverse. Well that is one possibility of how a strong correlation mean reverts. The other is what happened between July and September of 2012, where Copper dipped lower and then rocketed back higher to catch up and reaffirm to the strong correlation.

Another possibility is that the correlation has been broken. This can happen between assets as I pointed out last week in the relationship between the US Dollar and the S&P 500 here. In this case what looks like a breakdown in the correlation between Copper and the S&P 500 in February may have been masked by a strong correlation between Copper and the Shanghai Composite ($SSEC,

$FXI) that began in early December continuing. The Performance Chart above with all three clearly shows a strong correlation between the Shanghai Composite and Copper over the last 4 months. So did doctor Copper just take some time off to study Madarin?

Join the Dragonfly Capital Views Premium Membership

Sign up here to get deeper analysis and nearly 50 trade ideas every week.

Dragonfly Capital Views Performance Through March 2013 Expiry

If you like what you see above sign up for deeper analysis and trading strategy by using the Get Premium button above. As always you can see details of individual charts and more on my StockTwits page.

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.

blog comments powered by Disqus