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Tying It All Together With Copper

By Joe PerryMarket OverviewApr 16, 2020 12:08PM ET
Tying It All Together With Copper
By Joe Perry   |  Apr 16, 2020 12:08PM ET
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Copper is often referred to as “Dr. Copper,” as it is often viewed as a gauge of world economic health. The price of copper has turned higher recently, as it is often correlated with the stock prices and commodity currencies, such as AUD/USD. We have discussed recently how it appears the Australian dollar may be running into resistance and how the Aussie is correlated with stock markets. The Australian dollar is also correlated with copper. So, let’s look at the last leg of this three-ring circus and bring it all together.

Firstly, although central banks around the world are still in QE+ mode, Australia’s Employment Change released today showed an overall increase of 5,900 jobs versus an expectation of -40,000 jobs. However, the U.S. Initial Jobless Claims data showed that an additional 5,245,000 people filed for unemployment benefits last week. This brings the total to 22 million over the last four weeks. In addition, the Philadelphia Fed Manufacturing Index was -56.6 versus -29 expected (its worst reading since 1980). Combine this data with an equally horrible New York Fed Manufacturing Index and Retail Sales from yesterday, and we see an awful picture emerging for the data for the rest of April for the U.S. Many other countries are showing poor data for April as well, and the nail in the coffin could be next week’s global PMI data.

Now, onto copper. The price of copper has been trending higher as of late, in parallel with the S&P 500 and AUD/USD. Price has stalled at horizontal resistance, the 61.8% retracement from the Jan. 16 highs to the March 19 lows, and the 38.2% retracement from the March 4 highs to the March 19 lows. This resistance zone is between 2.32 and 2.37. The correlation coefficient for copper versus the AUD/USD is +.86 and versus the S&P 500 is +.91.

On a 240-minute timeframe, copper has formed a rising wedge and the RSI is currently diverging from price. (If price were to put in a new high, while the RSI puts in a lower high, this would be considered a three-drive formation, which is a high probability indication of a possible reversal). The target for a breakdown of a rising wedge is a 100% retracement of the wedge, which is near 2.00!

Is the worst of the coronavirus behind the world economy? According to copper, the S&P 500 and AUD/USD, one may think so, as all have gone bid over the last few weeks and data is considered a lagging indicator (poor data in this case).

However, if this resistance holds in copper, and the three asset classes turn lower together, than the markets would be telling us that we are not out of the woods.

Tying It All Together With Copper

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Tying It All Together With Copper

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Comments (1)
Hank Threefan
Hank Threefan Apr 16, 2020 4:14PM ET
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These markets are completely incoherent. Trying to divine actionable insight from COVID era market data is impossible. Nothing is acting rationally and the forces that influence price arent tethered to fundamentals.
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