One of These Charts Is Lying
Copper doesn’t believe the stock market rally. While the S&P 500 has managed to grind higher over the past several weeks, copper is flirting with its 2012 low.
For whatever reason, the price of copper and the level of the S&P 500 tend to move together. When one rallies or falls, the other typically follows suit. But that hasn’t been the case lately…
Take a look at this chart of copper…
Copper suffered a big decline last August and September. It rallied from November through this past April. Copper corrected again in May. And it has spent the past three months waffling back and forth within a fairly tight trading range.
Now look at the S&P 500…
#-ad_banner-#This is pretty much the same chart as copper, except for the last three months. The S&P 500 has been grinding higher while copper has been range-bound.
Copper and stocks are both viewed as leading economic indicators. They rally in advance of an upswing in the U.S. economy, and they fall in advance of a contraction. Right now, these indicators are telling two different stories.
One of these charts is lying… And we’ll soon find out which one it is. This sort of divergence rarely lasts long. Either copper needs to rally to catch up to the recent gains in the S&P 500 or the S&P 500 needs to decline to come back in line with the action in copper.
Aggressive traders can buy copper right here… and/or short the S&P 500 in anticipation of these two indicators coming back in line with each other.