The price of copper just rallied to a new yearly high. That’s a bullish sign for the economy and the stock market.
Copper is 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.
When the price of copper is falling, it suggests that global demand is weakening, and the global economy is contracting.
It’s not a perfect correlation. But, it’s strong enough that copper has earned the nickname “Dr. Copper” for its ability to diagnose shifts in the global economy.
And right now, despite all evidence to the contrary, the doctor is bullish.
Just look at this chart of the price of copper…
Notice how the price of copper peaked in late January. Then it fell – hard.
We warned in early February that the doctor had turned bearish. Copper was diagnosing a slowdown in the global economy. It was warning investors to be careful. (Click here to check out our new free resources tab, including our glossary and training videos.)
The U.S. stock market was trading at all-time highs. And, it continued to rally for another month before investors realized what the doctor had seen ahead of time.
Today, we have a different situation.
Investors are nervous. The S&P 500 is down about 5% from the high it hit in early September. There are plenty of reasons to worry… the U.S. elections, the resurgence of COVID-19 cases, calls for renewed shutdowns of the economy, etc.
But, Dr. Copper isn’t worried at all. The price is up more than 10% for just this month alone. And, copper closed yesterday at its highest price in over two years.
So, as much as we may want to lean bearish on the U.S. stock market – and I certainly tend to lean that way over the longer term – as short-term 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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In Monday’s Mailbag, we asked what you thought of Jeff’s prediction on where oil is headed. And, a few Jeff Clark Trader and Alliance members wrote us with their thoughts…
Jeff, oil is likely to move higher, beyond just the chart indicators. Refiners typically do their maintenance on the refineries in September and October, reducing purchases for those months. In addition, they’re pulling down stocks of expensive summer grades of gasoline from inventory, so they don’t lose money.
Once they have the maintenance done on the refineries, they have to buy, or have oil on hand, and ramp up the refinery to make cheaper winter grades of gasoline. Thus, the demand for the black, gooey stuff rises.
You’ll often get a pullback in December, as most refiners try to reduce stocks of oil and products to avoid the end-of-year ad-valorem taxes on inventory. In January, there’s often a new buying spree. Note: because oil trades more than a month forward for delivery, futures moves are a month in advance of when the oil is needed.
So, the question is whether or not the price of oil goes up or down. In this highly-charged political season, I think all the technical analysis and charts will be overwhelmed by the election results. If the Green New Deal party wins back the Senate and White House, it’ll not only be fossil fuels that tank, but it’ll also be the entire economy!
Higher taxes, more regulations, jobs again leaving the country instead of coming back here, COVID-19 shutdowns, chaos in big cities, small businesses forever going out of business, open borders inviting more millions of future Democrat voters, and last but not least, the end of our two-party system. Checks and balances, and our traditional values, will end and be replaced by an immoral socialist-Marxist government.
The new party in office will quickly move to cement their power in perpetuity by packing the Supreme Court, adding Blue states, and ending the filibuster. Meanwhile, the media, universities, and the entertainment industry will all continue to indoctrinate our youth to the extreme leftist worldview. Yes, I’m very worried!
For the first time in my 45-plus years of investing, I plan to hedge my portfolio with at least a 10% holding in gold. I hope I’m wrong. I would love
to know your thoughts regarding the points I made.
Jeff, as much as you prefer to go with oil, I’m fairly sure it will prove to be a bad move unless you’re going against it. COVID-19 is about to take a firm grip on the world again as temperatures drop, and people will spend more time indoors. Traditional flu season comes about due to concentrations of people inside heated areas with low humidity.
Low humidity causes sinus and nasal passages to crack open exposing the bloodstream to the virus. COVID is a virus as well and it will take opportunities when they present themselves. Dry indoor air, plus concentrations of people breathing indoor air over prolonged periods, equals a huge COVID bloom.
As COVID expands, people will become more concerned and stay home in isolation. Consequently, the normal workforce will have contracts to work from home and do “staycations,” rather than vacations involving travel of any kind. Less air, bus, train, taxi travel, and driving to resort locations equals only one thing… less fuel being consumed. So, oil prices should decline not increase.
Thank you, as always, for your thoughtful comments. We look forward to reading them every day. Keep them coming – and send us any questions – at [email protected].