Paging Doctor Copper

Not all commodities are created equal my friends. As great as this space has been all year and as bulled up as I am, Copper is simply not one of them. Down over 10% so far for 2014, what the heck is up with Copper?

The charts actually look a lot like emerging markets. Which isn't good. The numbers agree as well - the 3 and 4 year correlations are 0.73 and 0.79 between Emerging Markets and Copper (EEM/JJC). That's pretty high and the charts tell that story well.

Here is a weekly bar chart going back to the lows put in at the end of 2008. After a monster rally, prices started to peak in early 2011, right around the same time that the MSCI Emerging Markets Index made its highs:

We can see a pretty clean descending triangle that has all the makings of a massive break down. We would need to see prices back above the December highs in order to invalidate any bearish thesis. I'm not saying it's impossible, but from where we sit today, this is the low probability outcome. With this series of lower highs and a flat bottom, a breakdown here seems imminent.

When looking at a daily chart, it's easy to see why this recent breakdown has been so violent. As the old saying goes, from failed moves come fast ones in the opposite direction. And December's failed breakout through 2013 resistance was the catalyst necessary to break Copper down below the uptrend line from June.

It looks to me, based on both the daily and weekly charts, that multi-year lows are coming in Copper very soon.

Tags: $HG_F $JJC $EEM