Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

How Copper Prices Suggest Stocks Are Priced Too High

Tuesday, May 7th, 2013
By for Profit Confidential

Copper-PricesThe S&P 500 traded at another record high last Thursday, and there appears to be no stopping the bullish investor sentiment that has encapsulated the stock market.

Yet, while the stock market gains are great for the bulls, I still have an issue with the rate of the stock market rally. Simply stated, it’s just a bit too fast, too quick.

I also wonder why the stock market is ignoring the continued fragile state of the global economy in spite of a deep recession in the eurozone and stalling in China.

The reality is that we need to be concerned about how the global economy is faring. The idea of focusing too much on only America doesn’t make sense due to the increased correlation between the global economies. Slowing in Asia and Europe will impact U.S. companies. (Read “Why America Will Struggle if the Eurozone Languishes.”)

Looking at China, while the Chinese economy continues to expand at rates we can only dream of, the country is stalling, as reflected in its demand for commodities.

Copper is a key commodity used in wiring, pipes, electronics, and other areas. When the economy expands, so does the demand for copper.

  • 100% Profit in Your Pocket Every 14 Days or Less with This Never-Ending Winning Streak

    Any stocks in your portfolio make you 100% or more this year? Let me tell you about 25 of them! In 2013, 25 of our positions reached gains in excess of 100% each. Average profit per pick at their high was 215.6%!

    Our 100% Letter could make you more money in 2014 than ever before! Learn about it here.

China imported less copper in February with imports declining to a 20-month low, according to the country’s General Administration of Customs (Source: “China Copper Imports Slump to 20-Month Low on Holidays,” Bloomberg, March 7, 2013, last accessed May 6, 2013.) China is the world’s top importer of copper, so the decline in the import number is important. (Source: “International Trade Centre,” NationMaster.com, last accessed May 6, 2013.)

The lower demand from China is a telltale sign that there could be more slowing on the horizon. If this is the case, then you have to wonder about the current level of the stock market.

Take a look at the chart below comparing the movement of spot copper on the Chicago Mercantile Exchange (CME), as shown by the red candlesticks, against the S&P 500, reflected by the green line.

copper-spot-price-eod

    Chart courtesy of www.StockCharts.com

You will notice the direct correlation in the first part of the chart up to around March, when copper prices begin to trend lower on global growth concerns, while the S&P 500 continues to ratchet higher, based on my technical analysis.

Looking at this comparative move, I’m somewhat baffled by the stock market. The reason for the decline in copper prices is the rise in copper stockpiles due to the global slowing.

So why is the S&P 500 continuing to move higher?

It’s true, the U.S. economy is improving across the board, but you have to also consider or discount in what’s happening with the global economy; there are signs of fragility.

My view is that the S&P 500 and the stock market are running ahead of the fundamentals.

VN:D [1.9.22_1171]
Rating: 10.0/10 (1 vote cast)
VN:F [1.9.22_1171]
Rating: 0 (from 0 votes)
How Copper Prices Suggest Stocks Are Priced Too High, 10.0 out of 10 based on 1 rating

This is an entirely free service. No credit card required.

We hate spam as much as you do.
Check out our privacy policy.

George Leong - Financial Planner, ConsultantGeorge Leong, B. Comm. is a Senior Editor at Lombardi Financial, and has been involved in analyzing the stock markets for two decades where he employs both fundamental and technical analysis. His overall market timing and trading knowledge is extensive in the areas of small-cap research and option trading. George is the editor of several of Lombardi’s popular financial newsletters, including The China Letter, Special Situations, and Obscene Profits, among others. He has written technical and fundamental columns for numerous stock market news web sites, and he is the author of Quick Wealth Options Strategy and Mastering 7 Proven Options Strategies. Prior to starting with Lombardi Financial, George was employed as a financial analyst with Globe Information Services. Add George Leong to your Google+ circles

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
See it here now in this just-released alarming video.