Watching correlations

Yesterday I posted charts showing the correlation between the

a) AUDJPY vs U.S. 10 year bond yield

and b) AUDJPY vs the CRB (commodities) Index

Today (below) you can see how a) Copper vs AUSUSD

and b) Copper vs the U.S. 10 bond yield are ‘tracking’ each other.

September 7, 2021

by Rob Zdravevski

Economy Health Check

I’m watching the Copper/Gold Ratio (HG/GC)

Its direction tells me about the health of the economy.

The direction of the HG/GC also helps confirm the direction of interest rates. More specifically, the U.S. government 10 year bond yield.

In the chart below, I’ve overlaid a price chart (in blue) of the S&P 500 against the HG/GC.

You can see that the general direction of both the SPX and the HG/GC follow each other.

At this moment, the HG/GC is nearing a point where it breaks either way.

We’ll need to wait and watch in the coming week or so.

In my earlier post today, I imply that interest rates may rise.

This, then suggests that the HG/GC breaks higher (meaning Copper rises and Gold declines) which translate into the S&P 500 rising further.

A ‘melt-up’ in the S&P 500 is not a perverse idea, especially against the grain of many who are calling the top, let alone a crash.

It may seem odd to think, but markets often move to where they can do the most damage…..

and going higher can damage those who have been on the sidelines or sold up recently.

Missing out can also hurt investors.

September 10, 2021

by Rob Zdravevski

Copper on verge of breaking lower

Carrying on from my May 2021 call and reiteration in June 2021, Copper continues its laddered decline closer to its longer term mean.

Today, Copper is perilously poised.

It is trading at $4.24 on the front Comex contract and a break below $4.17 could see a swift decline to the $3.65-$3.43 level.

Your stop loss on a new short entered here would be $4.37, while a move above $4.45 will help wane the strength of the current downtrend.

August 18, 2021

by Rob Zdravevski

The economy is still healthy

The direction of the Copper/Gold Ratio (HG/GC) is a good indicator for checking on the health of the economy. Think of it as a thermostat.

It is also well correlated to the direction of the U.S. 10 year (the 10’s) bond yield. Often, the HG/GC precedes the move in interest rates.

In a recent post I wrote about the HG/GC’s relationship to the S&P 500.

Today, the short-term direction of the Copper/Gold Ratio has been down and so the 10’s (and S&P 500) have mimicked that.

The longer trend upward trend of the Copper/Gold Ratio remains intact.

Where this ratio trades to and its effect on the 10’s will determine the size of, and where the allocation of capital moves to.

Separately, (on a weekly basis) the 10’s have traded down to 3 standard deviations below its mean. Such a 3-sigma event has foreshadowed higher equity prices.

It’s at an acute point, however the equities bull market continues.

July 21, 2021

by Rob Zdravevski

The Copper/Gold Ratio says markets move higher

The chart below shows the S&P 500 (SPX) overlaid with the Copper/Gold (HG/GC) Ratio on a daily basis over the past 15 years.

The latter ratio is a good indicator of the economy’s health and sometimes a predictor of interest rate direction.

I find this chart helpful when pondering my asset allocation to equities and how much broader risk I am comfortable taking, especially at the later end of an advance, bull market or rally.

I like seeing how the SPX reacts when the HG/GC breaks above or below its trend lines.

Today’s reading of 0.002396 is calculated by dividing the Copper price of $4.32 into Gold’s $1,803.

At this moment, while the HG/GC’s is trading above its trend line (and a reading of 0.00222) it is suggesting that the S&P 500 advance remains intact……..

This seems quite perverse to many, as pundits reiterate their calls of an overvalued, ‘bubble-esque’ equities market.

In some recent posts I challenge the norm and perhaps the consensus call for a notable decline.

The S&P 500 can continue trading at the historical higher end of its historical stretch above its 200 Week Moving Average, just like the late 1990’s.

and the way the S&P 500 relates to the U.S. 10 year bond yield or more pointedly, the spread between the 10 year and 2 year yield is another important indicator to watch.

Investing is a highly nuanced past time or business.

Often markets move to where they can do the most damage….and going up can cause as much damage as going down, in circumstances such as ‘missing out’ or underperforming other fund managers if you’ve been holding a lot of cash.

P/E ratios are not the only thing to look at.

One scenario of a 0.00222 reading is Copper falling to $4.10 and Gold rising to $1,850. Just something to play around with.

July 12, 2021

by Rob Zdravevski

Keeping tabs on my Copper call

I was interviewed for this article (link below) on May 11th, 2021 in which I’m calling for a decline in the price of Copper.

Topically, Copper peaked a day earlier at $4.89.

Since that day, Copper’s price has fallen 14%.

On April 30th, 2021, the post link below highlights the consensus Long Copper trade.

My target price over then next few months is $3.43, which would coincide with a 50% retracement of the 15 month advance from March 2020,

but we’ll need to see if it holds the $4.04 level first.

June 29, 2021

by Rob Zdravevski

Health Check – the Copper/Gold Ratio

The watching the direction (not necessarily its value) of the Copper/Gold Ratio helps me reading the health of the economy.

And it has been healthy….

It’s particularly correlated with the direction of the U.S. Government 10 Year Bond Yield. More on that in the next post.

The chart below shows us the 6 moments when the Copper/Gold Ratio has registered an Overbought reading over the past 20 years.

Such occurrences correlate to and increase the probability of lower prices in the S&P 500 Index or at the very least see it trade sideways for the coming months. This also coincides with my thesis in my recent newsletter.

What this chart tells you is that probability does not suggest ‘going long’ or making any meaningful capital deployment into equities at this juncture.

May 2, 2021

by Rob Zdravevski

Know where you are in the range

Copper is attracting much attention, which is not unusual once an asset price has doubled.

Fundamental bullish cases are being made for rising demand compared to its tighter supply…..

but in the meantime the long-term price action suggests caution if you are thinking of establishing a new ‘long’ position.

This is only the third time Copper has traded at 3 standard deviations above its monthly mean is past 25 years.

#trap #reversion #overbought #copper

April 30, 2021

by Rob Zdravevski

Copper is rolling over

Doctor Copper tells us much about the economy.

For now, its downtrend is being confirmed and strengthening.

Let’s watch if it falls 3.5% and holds that level.

February 2, 2021

by Rob Zdravevski

Copper Rally To Fizzle

At today’s $3.48, Copper’s bull run from April’s $2.30 is done for now.

I’m still a commodities bull and will watch closely and may become interested again at $3.15.

Also, watch for implications a falling Copper price has on U.S. 10 Year Government Bond Yields.

Linked Post.

December 2, 2020
by Rob Zdravevski

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