How Does Copper Know?

Posted by barkand on July 21, 2011 under Commodities, Correlation | Be the First to Comment

If you read the popular books on intermarket analysis, or just search the internet for about 2 minutes, you will find that copper is highly correlated with just about everything at one time or another.

Since the start of the financial crisis, copper has been highly correlated with the U.S. stock market. We can remember reading one article which implied that the stock market was causing the price changes in copper. But that clearly is not the case. As you can see on the chart below, the copper market tends to change direction before the equity market. We have marked three bottoms in the markets which most clearly illustrates this phenomenon.

This relationship probably will not last forever. But for now, we can expect the stock market to remain healthy with copper prices near new highs.