While we await another challenge of the June highs by the S&P 500, copper has quickly recovered almost all its losses from the sell-off that began in May. Copper is potentially heading for fresh post-crash highs.
Source: stockcharts.com
Of course, copper is now much more important to the emerging and developing markets than to developed economies like America’s, but I think this price recovery provides a remarkable contrast to current fears of double-dips and deflation.
One could also interpret this price action as anticipation of more money-printing and stimulus from the developed economies instead of a positive indicator of fundamental future economic health. An even more bearish interpretation of the chart might point to the potential head and shoulders formation and/or the marginal lower low in June. These technicals definitely work against copper’s case form this perspective. However, until copper fails at the April highs, I believe the 25% rally off the June lows should be taken seriously. Similarly, a break above those highs will be very bullish and suggest a continuation of the rally off the late 2008 lows.
As with any technical call like this one, confirmation of the signal must precede confidence. So, I am neither bullish nor bearish here on copper, just alert. For an example of how charts of copper’s price have been used to forecast potential economic danger, see “The Doctor is Calling” by Mike Shedlock at MISH’S Global Economic Trend Analysis (September 25, 2006). In this case, copper failed to confirm the bearish signals and instead proceeded to rise in price for almost another two years before finally peaking and then crashing.
Be careful out there!
Full disclosure: no positions