Copper and the Chinese market are thought to go hand-in-hand. Like any Wall Street rule of thumb though, it works sometimes but not always. There was a long period from 2002 until 2006 when this rule gained popularity. But that quickly went by the wayside from 2007 through 2010.
Still,what goes around comes around they say. So is there something worth watching going on right now?
On Tuesday, I noted that Copper was starting to look attractive. And with the daily charts of the Shanghai Composite moving up through short term resistance, there is reason to pay attention. Here's 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 three-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 relationship 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.
Disclosure: 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.