Is Copper About To Give A Huge Buy Signal To US Equity Investors? - John Rothe | Portfolio Manager, Quant, Tech Geek, And Sometime Superhero To My Kids

Is Copper About To Give A Huge Buy Signal To US Equity Investors?

One of my themes for 2012 has been the price of copper. From my 2012 Outlook:

Copper is an amazingly conductive metal, AND a fantastic gauge of the overall health of the global economy. From September 2011′s Economist:

“Copper’s excellent conduction of electricity and heat means that it is used not only to cable and pipe the globe. An average car contains over 25kg of copper; electronic gadgets, from PCs to mobile phones, use copper for wiring and contacts. Its ubiquity means that rising demand should provide an early indication of an uptick in manufacturing and construction. Copper sagged in the early stages of the credit crisis, for example, and then started to pick up at the end of 2008, some months before the stock market began to rebound.”

Cooper is about to present investors with a Golden Cross:

Copper: Close to a Golden Cross

 

For those who are not familiar with the Golden Cross pattern:

Definition of ‘Golden Cross’

A crossover involving a security’s short-term moving average(such as 50-day moving average) breaking above its long-term moving average (such as 200-day moving average).

Investopedia explains ‘Golden Cross’

As long-term indicators carry more weight, the Golden Cross indicates a bull market on the horizon and is reinforced by high trading volumes. Additionally, the long-term moving average becomes the new support level in the rising market.

Technicians might see this cross as a sign that the market has turned in favor of the stock.

 

Why does a Golden Cross pattern in copper have anything to do with equity investors? Past Golden Cross patterns have given equity investors an early indication that a longer term trend is about to begin:

Past golden cross copper

Copper: Past Golden Cross Signals

SPX vs Copper

S&P 500: Red Arrows Indicate a Golden Cross in Copper

While the popular media heads are starting to talk “gloom and doom” about the stock market, investors should be looking at historical patterns in the market (like above) to get a better gauge of what traders and large institutional investors are thinking.

 

Happy trading!

-John

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