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Copper Has Been Replaced

Long
NASDAQ:SOX   Philadelphia Semiconductor Index
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18
Copper in my opinion has been replaced by technology, specifically semiconductors. The market seems to be much more focused on the happenings of Silicon Valley rather than Milwaukee or Detroit. While the industrial sector still remains a large piece of our economy it no longer is the driver of growth. At least that’s what price action has been telling us.

The chart below shows the performance of the S&P 500 (black line), the Semiconductor Index (red line), and the spot price of Copper (green line). You can clearly see that copper has not been enjoying the bull market party while semi’s have been moving right along with the market. It’s a little hard to see, but in 2011 we saw semiconductors break away from the S&P 500 as the industry made a lower low, a divergence that the equity market eventually fixed by falling in price by nearly 20%. Ever since then we’ve gotten confirmation by the semi’s of the new highs in the S&P .

It seems Copper has been expelled while the semiconductors step to the front of the class.

Comments

Thanks you for the excellent analysis. If copper drops severely, say to approx $2 or below, do you believe that would signal strong dis-inflation (deflation)? Enough to affect equities? Perhaps the run higher since 2003 was a result of hoarding by Chinese speculators placing the metal in storage? Now the real estate market in China has cooled. If so, copper needs to be marked down. Your analysis on the (non) correlation between the SP500 and copper is spot on. Run the correlation with the etf GWL vs copper. Looks like it broke its near 1:1 correlation last summer. Thanks again for your input and observations.
+1 Reply
charttrader kilo1romeo
Copper reflects the real economy and the global economy. And both of those are in serious trouble)
+1 Reply
kilo1romeo charttrader
Developed nations demographics suggest an aging population and declining demand for goods/services. Continents such as Africa have a young population that is reproducing but not the education or political ability to lift the population and thus demand. This may take decades to resolve. Let's not even get into the larger issue of the environment on this planet. Earth will be fine. Humanity may not. Enough pontificating on my part. You have a blog? If so... link? Thanks charttrader.
+1 Reply
How did you overlay the 3 charts? I have been having trouble figuring that out here. By the way I love your work and read your blog.
+1 Reply
charttrader sammantic
Use compare button on the top toolbar.
+2 Reply
Uptick in Copper and Semi's go down.. Strange
Reply
Dr. Copper has been replaced by Dr. Sox
Reply
Wait till AMD catches up with this trend, big laggard.