Copper is often referred to as 'Dr. Copper' because of its unique...

Copper is often referred to as 'Dr. Copper' because of its unique ability to forecast economic trends. On September 15th I sent the following chart on copper to a friend. I proposed copper was about to break down. Technically that near perfect symetrical triangle is a continuation pattern which in this case would be a bullish formation. OK Mish, so why the '?' assuming down? That’s a good question and enquiring minds deserve answers. Here goes: BEA 4th Quarter GDP 1st Estimate 0.7% Q&A: Why Did GDPNow Rise After Durable Goods? When are Construction Revisions Coming? Copper is often referred to as 'Dr. Copper' because of its unique ability to forecast economic trends. On September 15th I sent the following chart on copper to a friend. In a previous conversation with this friend from a few months back we discussed the idea that the bull in copper would end as soon as copper went into I still believe that Copper simply cannot ‘escape’ the horror-show that has become the US Housing market, particularly as defined by an expected deepening contraction in new home building. Observe the teetering price as relates to the underlying support offered by the most recent double low ($3.265-3.275) and the med-term 100-Day EXP-MA. 'The chart above plots the 100-Day Exponential Moving Average of the Cash-to-Three Month Spread for Copper, traded on the London Metal Exchange. Copper’s spreads are in free fall, and this spread has completely wiped out all of its HUGE $200+ per tonne backwardation and has collapsed into contango, indicating an amply supplied market for the first time since the 4Q of 2003. A breakdown in Copper would be a confirming signal, and ‘should’ provide the proverbial ‘next shoe to drop,’ in terms of a broadening disinflation becoming increasingly dominant in the entire commodities sector.' Many traders have affectionately referred to copper as “Dr. Copper” because it is considered to be “the only metal with a PhD in economics.” That is, copper historically has been considered to be an excellent barometer of the overall state of global economic activity because of its widespread use in industrial applications. What Dr. Copper is saying right now is that the world economy is booming. As can be seen in Chart 1, the price of copper has nearly tripled since 2001 and is approaching $2.00 a pound. Much of that is attributable to the growth in China, which has created nearly insatiable demand for copper as it upgrades its electric power grid. But a booming housing market in the U. S. and strong growth throughout much of the developed and developing world are also part of the story. Although copper went on to soar way past $2.00 lb all the way to well over $4.00 lb in May of 2006, the message from Dr. Copper seems quite different today. The interesting thing to me is that hardly anyone is taking these trendline breaks seriously even though there are breaks practically everywhere you look: oil, natural gas, sugar, the $CRB itself, and now a technical failure in copper. Yet posts of charts like these on Silicon Investor and other places just bring a big yawn. In fact, in a response to one of my blogs from just a day or so ago, someone used commodity charts to show 'current inflation'. Has everyone really forgotten about the lagging effect of 17 consecutive rate hikes? No, not everyone. Brian and I at the along with Greg Weldon and many of the professors on Minyanville are taking these breaks very seriously. Are the technical breaks in various commodities we see now akin to the technical breaks in JDSU, LU, CSCO, and INTC in 2000 that most disregarded? Right now it is hard to say, but the complacency and buy the dip mentality sure seems similar. Perhaps this is nothing more than a head fake lower on gold, silver, natural gas, crude, gasoline, sugar, and copper. Then again perhaps the good doctor (along with confirming indicators such as M1 money supply, the inverted yield curve, and housing) is telling us that this patient (the US economy) is very ill. I think you know which way I am betting: The weakness in Housing is about ready to spill over into other areas. A consumer led recession is on its way. The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.