Have You Seen What Base Metals Are Doing?

From the desk of Tom Bruni @BruniCharting

Copper has been getting a lot of attention as it hits 5-month highs, but there is another Base Metal chart that's not being talked about.

Today we're looking at that chart and then taking a more comprehensive approach at what's going on in the space.

Here's Copper making 5-month highs as momentum attempts to get overbought. The record net long position held by commercial hedgers continues, suggesting they think Copper prices can still head higher despite a more than 10% rally from the July failed breakdown.

Click on chart to enlarge view.

Stronger Copper is a good thing for Emerging Markets and reflects market participants pricing in stronger economic growth conditions.

Higher growth = greater demand for base metals = higher Copper and Base Metal prices. Or so the theory goes...

The chart not being discussed right now is the ratio of Base Metals vs Precious Metals on an equally-weighted basis, which is making new all-time lows as we speak after failing to hold new highs in mid-2018.

If Copper doing well is a positive sign, then wouldn't all Base Metals performing well be an even better sign? If it is, then bulls want to see the lows set in 2011/2012 reclaimed...and fast. It'll take a lot more than just Copper to do that as well, the other five need to start pulling their weight.

And with the Equal-Weight Base Metals Index making 2.5-year lows in the face of strengthening Copper prices, it's clear the other 5 aren't gaining much traction.

Meanwhile, in the Equity market, we're seeing more improvement from related subsectors like Metals & Mining (XME) and Steel (SLX).

Several months ago we began pointing out that their downside momentum on a relative basis was waning, those ratios began to grind higher, and now we're seeing breakouts on an absolute basis with prices making nearly 8-month highs and momentum getting overbought for the first time in just as long. As long as prices are above 26.60, then weakness can be bought with a longer-term target back near 39 where the downtrend began.

These improvements are classic signs of a bearish to bullish reversal in Copper and the mining space and suggest that we've shifted from an environment where we want to be selling rips, into one where we want to be buying dips.