Let Copper Be Your Guide

Copper prices are hot today as most commodities melt higher from a dollar beat down. The JJC, the Copper tracking ETN is up over 4.5% on the day, helping the copper producing equities break out of their recent highs. Stocks such as Freeport McMoran (FCX), Southern Copper (PCU), and Rio Tinto (RTP) are up big across the board, most of which are taking out yearly highs.

The Copper trade has been a hot trade over the last few weeks, but behind the scenes, Copper prices have played a leading role to equity prices, and are one of the reasons why this rally will likely continue higher. Check out the chart below.

Looking at the historical data above, you can see how Copper prices bottomed ahead of stocks, lat last year. At the point of the breakout of the 2 month range in Copper prices, this move signaled the bottom for equity prices. When looking at the charts of FCX, PCU, or RTP, notice how these few stocks bottomed well ahead of the rest of the market, most of which back at the October and November lows.

We’ve been tracking copper prices and how they impact stock prices, and it has been a great leading indicator to stock prices. With Copper trading at 10 month highs, look for the S&P to continue higher with little resistance so long as Copper continues to lead the way. Don’t plan for big pullbacks unless Copper tells you otherwise. Note that while the bearshitters shorted stocks and life itself into the Head & Shoulders pattern, Copper prices were not confirming. This is an important correlation to follow and one that points to higher stock prices.

On the day, energy and materials continues to be the most rewarding court to play ball in. Financials still look strong, holding gains despite heavy trading in BAC and C…but look for some money to rotate into WFC this week. Alongside PNC and MS, this is one of my top picks in the group.

I’ll be back in an hour or so with some closing comments.

Option Addict