For as long as I can remember, the price of copper has been an excellent leading indicator for the health of the global economy. When copper is rallying, it suggests a healthy demand for manufactured goods – which leads to solid economic growth.
And, when the price of copper falls, it suggests that global demand is falling, and the economy may be weakening.
It’s not a perfect correlation. But, it’s strong enough that copper has earned the nickname “Dr. Copper” – for its ability to anticipate shifts in the global economy.
And right now… the doctor is bearish.
Just look at this chart of the price of copper, and pay close attention to the action over the past month…
The price of copper peaked last April. Then it fell for the next six months as the United States and China tried to work out a trade deal.
Dr. Copper started sniffing out a trade deal in December, and the price of copper rallied sharply until the deal was signed in mid-January.
But, look at the decline in copper since then. The price has fallen 13% in just the past three weeks. In fact, copper has fallen for 13 straight days.
I can’t recall ever seeing copper behave this way before. But, steep declines in the price of copper tend to correlate with contractions in the global economy. So this action suggests we’ll see a slowdown in the economy.
It also suggests the broad stock market might be set for a decline as well.
Take a look at this one-year chart of the S&P 500, and note how it rises and falls with the price of copper…
You can see how the red and blue lines on this chart line up quite well with the lines on the chart of copper.
The action in copper is telling a story that the U.S. stock market isn’t agreeing with yet…
So, as traders, we should be asking ourselves…
Who should we believe at this moment, the doctor or the patient?
Best regards and good trading,
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