Copper looks sick. And, that’s a bad sign for the global economy.
You see, the price of copper is widely viewed as a leading indicator of economic activity.
Copper is used in electric wiring, plumbing, machines, and manufacturing of all sorts of products. So, when the price of copper is rising, it indicates strong economic activity. When copper is falling, economic activity is slowing down.
The price of copper has fallen 10% over the past month.
And, if the price doesn’t bounce soon, it could be headed for a freefall. That’s a bad sign for the economy.
Here’s the chart of copper…
Copper closed Tuesday at its lowest price of 2023. It’s just above an important support level near $3.60. If it loses that level, then $3.40 comes into play.
The MACD momentum indicator at the bottom of the chart doesn’t show any positive divergence. In other words, it has been falling right along with the price of copper.
That’s usually a bearish sign. It means the downtrend is intact. Any hopes for a rally are premature.
On the other hand, the RSI and CCI indicators DO show positive divergence on this week’s decline in copper. This tells us copper MAY be gearing up for a short-term bounce – just as it approaches an important support level.
So, we have mixed signals. That’s better than strictly bearish signals, I suppose.
But, it’s hardly a ringing endorsement to “BUY BUY BUY!”
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My best guess is that copper is setting up for a modest bounce once it approaches the support level near $3.60. Although, that bounce will be short-lived. The red metal is headed for a test of the $3.40 level and might even make it down to the July low near $3.20.
That’s a bad sign for the economy, and a bad sign for the stock market.
After all, the price of copper fell from $3.70 last August to $3.30 in September. The S&P 500 fell from 4300 to 3600 during the same period.
Something similar could happen this year as well.
Best regards and good trading,
Jeff Clark
READER MAILBAG
Have you used copper as an economic indicator before?
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