Most of the time, the spot price of copper correlates very well with the development of share prices. Occasionally the copper market experiences a temporary slump that results in a spike that is not reflected in stock prices, and this is perfectly normal. In 2021 and early 2022 we saw several such spike tops.
A better clue comes from outside of these brief squeeze events when we see more sustained divergence between the two charts. We are currently seeing such divergence, with the NYSE Composite Index ($NYA) still at a higher low, but pushing copper prices lower in a lower high/lower low pattern, defining a downtrend.
When those two plans don’t align, in most cases copper is right about the direction they both ultimately go. That’s an alarming finding right now, and it fits with the paltry numbers we’re currently seeing. The NYSE AD line shown below is also making lower lows thanks to Apple (AAPL) and Microsoft (MSFT) bullish moves, which is at odds with the higher highs in the S&P 500 and NDX.
The message from both Kupfer and AD Line is that liquidity is tight, and you can thank the Federal Reserve for getting where it wanted to go. They believe they can suppress price inflation by removing liquidity from the banking system through higher short-term interest rates and “quantitative tightening” (QT), i.e. selling their bond holdings. Whether this actually suppresses inflation is another question, but there is no doubt that it affects the liquidity of financial markets.
