Executive Summary
Copper had a similar uptrend at the beginning of 2021; copper is extremely bullish right now, implying the continuation of the current economic expansion. In conclusion, we recommend staying out of the housing and manufacturing stocks as copper has more downside than upside for the rest of 2024.
Why Investor and Traders Should Care About this Leading Economic Indicator!
Also referred to as Dr.Copper or red gold, copper is a major economic indicator of a country's financial health. Its unique physical properties make it the foundational metal of industrialized economies. As one of the most cost-effective electricity conductors, copper is highly correlated with the health of housing, manufacturing, and infrastructure spending. Since copper is a relatively stable commodity, its demand usually reflects a healthy economic activity ahead as people use it in plumbing, piping, fittings, tubing, wiring, roofing, flashing, electronics, industrial, automotive, and marine applications. By the end of this investment report, you should be able to make a sound investment decision to boost your portfolio performance.
Copper Chart Analysis 1/2
Key Points 1/2
YTD and YoY, copper rose 3.6% and 8.1%, respectively. In the past five years, Copper has gone as low as $2.18/pound and as high as $5.05/pound; during the same period, there were two major long-term uptrends. The most recent long-term uptrend began in Jul '22 and was confirmed in Oct '23 when the long-term downtrend reversed to the upside; in addition, copper signaled a bullish alert on Feb '24 when its price broke above the 200-day Moving Average. Since Oct '20, copper has been above $3/pound, which is considered a high but healthy price for the metal. It became even more bullish when it broke above $4 on Mar ‘24.
Copper Chart Analysis 2/2
Key Points 2/2
Despite being a relatively stable commodity, the economic demand for Copper has historically led to inflationary pressures in the U.S. as businesses pass on their copper-related costs to consumers. Therefore, when the Fed raises interest rates to stifle consumer demand for housing, automotive, electronics, and other consumer goods, copper inflates even more as the Fed Quantitative Tightening (QT) strengthens the US Dollar (USD). Since commodities are generally sold in USD, a strong USD inflates commodity prices, thus driving business input costs.
Once consumer demand slows down and the job market starts to show cracks through the unemployment rate and jobless claims, the Fed pivots to Quantitative Easing (QE) to stimulate the economy; QE weakens the USD. The last unemployment (4.3%) report made it clear to the Fed that the QT has started to kick in and a pivot is imminent. As a result, a weaker demand for copper-related goods, followed by a weaker USD, will drive the price of copper down.
Investment Analysis →Neutral (Sell)
Copper is on a bullish trend (price above $3) that signals an economic expansion for the US economy, mainly in housing and manufacturing. However, copper has declined since hitting its all-time high ($5.05) in May '24. Copper bounced on a major support area ($4); further decline until the 200 MA is expected because of the MACD bearish crossover that occurred last month (June) and continues to diverge further. We recommend staying out of the manufacturing and housing stocks but staying invested in the S&P 500.
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