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Copper Seasonal

The stock market as measured by the S&P 500 is currently at 1370, which is roughly up (+9.5%) year to date.

Copper prices are trading slightly up to unchanged on the year; however this is a good signal that economic conditions around the globe may not be as dire as has been reported. While China’s GDP figures were downgraded to under 8% and the US is under a questionable recovery, according to the head of the Federal Reserve, Ben Bernanke.

If we look at the building & material sector as represented by the (XLB) you will see that is higher on the year (+ 5.2%). In addition, we have seen a very perplexing year to date up tick in home builders stocks such as Lennar (LEN) (+51%), Toll Brothers (+48%) and PulteGroup Inc. (PHM) (+58%). In light of weak economic data, sky rocketing foreclosures and tighter lending requirements this sector has outperformed most others in the S&P 500. 

This surge in this sector may explain why copper prices have been holding steady all year and may indicate that the US economy may not be as weak as some believe. The jobs data and other economic reports have suggested growth is moderating, but copper prices are revealing that economic growth, while not robust is certainly not reversing.

According to my research in the Commodity Traders Almanac, Copper prices do see a tendency to rise in July lasting into September as construction season winds down and new cars are manufactured ahead of the New Year models. If we see a spike in Copper prices in the coming weeks ahead then this will give a indication that there is a strong demand from orders in both housing and for new cars, which will be good confirmation for a more bullish economic outlook and a good indication for further strength in the stock market. Examine figure one which is a weekly chart on copper with the On Balance Volume indicator in the lower quadrant.

As the chart shows copper prices are trading back near the yearly opening range. The monthly persons pivot indicator shows we should see resistance come in around 3.59 this month. The fact that the market has spent over 50% of the time trading above last months low, odds are that the lows for this month have been established and that we will now start to test the upper price boundaries. The one issue here is volume. There is no commitment when prices have moved up. If you look at point “A” on the charts the high made on June 6th at 343.05 were well below the high established on July 3rd,  at 355.65. Granted it was thin holiday market conditions, but the On Balance Volume (OBV) indicator shows  a decline in trend as indicated at point “B” on the charts.

Looking from a technical perspective if we see September Copper futures break out above 352 by next week (we could see this by tomorrow) and if we see this price increase accompanied with a rise in the OBV indicator, then I see a good chance for the 3.80 level and then a potential to retest the yearly highs around the 4.00 by September.

Two things to consider, first watch the September front month futures to move higher over the next several weeks, we certainly want to see prices continue to hold above 3.45, that’s the yearly opening range. Secondly watch the OBV indicator to see if a price increase is met or in gear with a rise in volume.

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3/4/14 -Hello Mary, I hope you had fun at the golf event.  Tell John he was right on the money (pun intended).  I think John was in the minority of seeing the signs that the market would