The first is the S&P 500 as it powers higher and shrugs off Italian election results, sequestration fears and moribond employment choosing instead to focus on the data detailing growth, albeit however minute that might be.
The second is the copper market, afffectionately referred to as "Dr. Copper" for its uncanny ability to project investor sentiment towards overall economic growth.
These two apparent lookalikes, Darnay and Carton, have recently taken to going their own separate ways unlike that of the novel wherein they find their paths increasingly intertwined.
Take a close look at the following two different colored lines. The blue line is the closing price of the S&P 500 (emini) while the red one is the red metal, Dr. Copper.
Don't worry about the actual price level of either one; look only at the DIRECTION of price movement for both lines. I have only gone back to June of last year with this for analysis purposes but wish to point out how the two lines are basically in sync until February of this year. Notice that they tend to both rise and fall together. Spikes in the S&P were matched by spikes in Copper with dips in the S&P coinciding with dips in the price of Copper.
Along about the beginning of this year, the two markets began to diverge a bit in the sense that while the general trend in copper was up, it began moving lower during periods in which the S&P continued to move higher. Copper would recover from the dip and move higher again, seemingly catching up with the S&P but right around the beginning of the second week of February, these two companions apparently parted company and did so rather glaringly.
Can you see how sharp the fall in copper has been over the last month? Can you also see that while the S&P has briefly dipped following copper lower since the middle of February, it then rebounded higher as copper continued to sink? The divergence is especially pronounced over the last week or so.
Here is the issue - both of these markets should not be both true. In other words, if Copper is a predictor, and a generally reliable one, of expected economic activity in the future, then one has to question why the equity markets are seemingly no longer paying attention to its fall. We are constantly being told by the pundits that the global economy is recovering and growth is expected to continue, even if it is at a rather lackluster rate. Yet, here we have copper falling lower giving us a clear signal that growth is expected to slacken.
Which one of these forward looking indicators is true?
I should also note here that the large macro funds ( the hedge funds ) are now playing copper from the short side. Talk about more fuel for further uncertainty. Watching to see how this will further unfold is certainly going to be interesting to say the least.