Commodities Countdown

$COPPER And The Miners - The Problem Continues

Greg Schnell

Greg Schnell

Chief Technical Analyst, Osprey Strategic

$COPPER has been migrating sideways to down recently. The recent bounce off the 10 Week Moving Average is supportive. Back in May, I posted this chart suggesting that if $COPPER could get going, the global mining stocks should also reflect that bullish enthusiasm.


While $COPPER has been able to hold above its 40-Week Moving Average (40 WMA), none of the major miners are able to follow along. Almost every chart is making new lows for 2017. TECK, Freeport McMoran (FCX), and BHP look worse than VALE and RIO. RIO and VALE are at 6-month lows where the others are at 8-month lows or worse.

For a global bull market, its appearing that it can be built in the cloud and not with raw materials. 

Looking at commodities through a currency lens, the Emerging Market Currency ETF looks like it agrees with the stock prices of the miners again. Historically, the Emerging Market Currencies followed the commodity markets albeit with some deviation. The charts below show big downtrends in black breaking earlier this year.

There has been some divergence between the trend in commodities, the normal Commodity Currencies (Canada, Australia and Brazil) and the Emerging Market Currencies all through 2017. The divergence was significant enough to suggest that emerging markets were now trading with the technology stocks rather than commodities. 

Brazil and Australia and the CEW broke multi-year black lines earlier in the year. The Canadian Dollar broke above this long black downtrend just last week (look closely) that was tested on many occasions rather than using the June 2014 high. The CEW is just testing the 6 year major trendline now. The problem is Brazil's Real and the CEW have both broken the recent orange uptrends.

Currencies are some of the fastest moving markets. The Commodities are usually a little behind so the breakout in currencies would lead us to believe Commodities were about to get going.  It sure does not feel that way today as they all continue to drop.

Lastly on the subject of $COPPER, I was linked into an article about how $COPPER demand will improve with the move to electric power for transportation like cars and buses. While the theme may be right, the use of Technical Analysis may help us with the timing. Below is a chart with $COPPER and an ETF that tracks Copper miners (COPX). The ETF broke above the 40 WMA and stayed above it for most of the year 2016. The price of $COPPER took a while to get the mojo. Now the COPX is below the 40 WMA and it looks like $COPPER might follow.

We'll continue to monitor this relationship over time, but currently investors are selling the story, not buying it.

Good trading,
Greg Schnell, CMT, MFTA.

 
Greg Schnell
About the author: , CMT, MFTA is Chief Technical Analyst at Osprey Strategic specializing in intermarket and commodities analysis. He is also the co-author of Stock Charts For Dummies (Wiley, 2018). Based in Calgary, Greg is a board member of the Canadian Society of Technical Analysts (CSTA) and the chairman of the CSTA Calgary chapter. He is an active member of both the CMT Association and the International Federation of Technical Analysts (IFTA). Learn More