COPPER TANKS AS OIL/COPPER DIVERGENCE WIDENS

Copper prices are tanking 3.5% today as oil rallies and fears over a potential economic slow-down from surging oil prices worry investors.  This divergence is notable due to the fact that copper and oil prices had largely moved in tandem up until just recently.  As fears in the Middle East developed a clear divergence appeared.  Over the last month the divergence has resulted in a nearly 25% swing.  If you’re looking for a real-time sign of economic concern this is your metric….

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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • AWF

    Here is another- If you’re looking for a real-time sign of economic concern

    DALLAS (AP) — Southwest Airlines Co. has joined a sweeping increase of $10 in the price of many domestic round-trip airfares, citing the need to offset high fuel prices.

    Southwest’s action over the weekend may have ensured success for a price hike by major airlines that seemed to be faltering. Southwest carries more U.S. passengers than any airline and wields great influence over prices.

    It’s the sixth time airlines have raised fares already this year. FareCompare.com CEO Rick Seaney says leisure travelers may now have to pay $260 for a ticket that cost $200 back on Jan. 1

  • B Ferro

    My personal real-time economic concern is not being invested when the market takes off within the week to new highs.

    Let’s be honest with ourselves regardless of what copper is doing – the market is resolutely and unequivocally bullish and reselient here.

    If it was going to correct it would have done so by now. The Euro/Flash Crash crisis corrections from Jan/Apr 2010 were quick and swift.

    This one, by contrast is taking a lot of time to work itself lower. Reminds me very much of the price action back in November. Lots of distribution that was totally gobbled up by the market before it exploded higher.

    That should be the case here, regardless of what copper says.

  • Derfem

    Yes, but the MAIN difference with November are: EM is still down and broken ascending channel, Soft-Agri is not so much bullish, and the metal complex is distributing too.
    The line in the sand is the MM50 Daily. Everybody has got his stops just behind. If it broke, the correction will begin (1294 on the SP500 today).

  • Derfem

    On the other hand, what could be the upside catalyst for new highs ?
    – earnings season is over
    – indicators are strongly bullish (and they cannot be more bullish)
    – end of the middle-east crisis : not so fast, and the more it continue, the more the market will be down.
    =>> For bounce up, the oil price peak MUST be TEMPORARY (fast return to normal – 90$ range or less).

  • B Ferro

    You have to admit, like it has every time in the past 6 months, the market has had every reason to sell off very aggressively here and it has failed to do so.

    I’m more of the view that any rally here is apt to be short-lived, but nonetheless, if you have ANY respect for price action you must be willing to concede it remains very resilient.

    I’d be a buyer in the low 1300s again for a quick trip to 1400-1450.

    Don’t forget, if it gets sketchy, they WILL do QE3.

    Also, as far as EMs go, it’s time to be long those again. Consensus is now that they are apt to underperform. Some will play better than others, but the most important one, China, is set to explode, in my view.

  • Willy2

    Compare the oil price with the BDI (Baltic Dry Index) !!!

  • Derfem

    Agree with EM.

    For SP500, price-action of late is not so much resilient: the first drop was retrace, as on any bull on earth, and do not achieve to neither make new highs or break 1295. PA is mix, according to me.
    In fact, people are scared to short because of the Bernanke Put, that’s right. And that’s the problem: no incentive to buy with the Oil crisis, scared to short because of Fed.
    We are just a little bit more than half-way of QE2, QE3 will be another story. But right now, he won’t stop QE2 before end, and obviously not hikes rate before the end of QE2.

  • Jules Vos

    B Ferro is right though. I see a lot of risk and I don’t think we are done with the tanking just yet (maybe 5% more to go and some more negative headlines) but the markets are inefficient and you have to assume it is more likely that it will ignore facts and make new highs.

    Why are markets inefficient? Fed statistics clearly show that the equities market is over half retail money, exact amount depending on the phase of the cycle (and these guys decide when to invest in or pull from mutual funds or go into stocks/etfs directly). For intraday trading, you’re mainly up against institutional traders, but for long-term trading you are mainly up against the retail crowd. Institutions also reduce their exposure when valuations go up and increase their exposure when valuations go down. This is common knowledge afaik. Retail works the other way around.

    In other words, that part of the money does not know what it is doing. Therefore it pays to assume the market will take the stupidest possible route to its eventual destination (for example in january 2007 it was completely obvious to any moron who knows anything that the markets were too expensive, yet they got more expensive without really any good reason. Then in December 2008 it was obvious the CBs were going to flood the system with liquidity, yet the markets sold off sharply for another quarter. Why? Because the participants in the markets don’t understand what is really going on)

    This is why it pays to sail with the morons (as long as you are not the greatest fool), and I am quite convinced there is a greater fool still.

    In any case, my personal prediction is that it will stop falling quite soon, approach prior highs and then go down a little bit when the knowledge there will be no QE3 sinks in. When it fails to make a new low at that point(which I think will happen), the crowd reaction will be “OMG, SEE IT WASN’T QE3! THE ECONOMY REALLY IS FIXED RAAAAAAWR!” (in reality this reaction will be wrong on both counts that QE is responsible for stock market valuations AND the recovering economy). This will be the last leg up most likely (or at least should be followed by a severe corrective phase)

  • http://merrillovermatter.blogspot.com Greg Merrill
  • Cy Hailow

    With a wry smile I read the many comments here of the apparently self deemed “smart money” rationalising their staying invested.

    Folks, in fact it’s nowhere as complex as you try to make things sound, it’s all very simple. Dr Ben has devalued all other investments so that even overvalued equities appear relatively attractive. Sure this situation may not change until the next unknown unknown impacts sentiment. Then it may not be that easy to exit, just because it was so in late 2007-early 08.

    Look back to 19 Oct 1987 least you forget how the SP500 gave up >20% in one UGLY day! So hanging around for an extra 6% or so might be a really bad bet. They even have faster computers to outsell you this time.

    The truly “smart money” might be smarter than you credit them. The market is not cheap, it’s the really smart money thats spinning that line to you!

    Singapore, 10/3/11