Copper and Emerging Markets Are The New Hotness

JC Parets
October 24, 2019

Have you noticed that with Tech and Software and other areas grinding sideways or lower, we've seen a consistent bid in Emerging Markets? Have you looked at Brazil lately? The last thing stock market bears want to see is rotation into these serial underperformers.

I don't think this is a tiny story either. I think there is a much bigger theme going on here that would be irresponsible to ignore. First of all, let's make something clear. Copper prices and Emerging Market stocks move together. You can't argue with me on this one.

Copper doesn't move with the "economy". Copper doesn't move with the S&P500. Copper is not a "Dr." of any kind. Copper moves with Emerging Markets. Period:

Click On Charts To Zoom In

So with this important distinction out of the way, let's talk about why it matters.

Commercial Hedgers in Copper (the "smart money"), had on their largest net long positions of all time last month. Even after taking a bit off the table, they still have most of that position still on and it is still one of the largest net longs of all-time. Non-Commercials, or speculators if you will, have on one of their largest net short positions ever. This hasn't changed.

The speculators think Copper is about to collapse. The Commercial Hedgers are betting on the opposite - a face ripper. This is the "Head & Shoulders" top that I don't think is that at all:

I really think the squeeze is on.

For further confirmation, we want to look at the similar correlation between Emerging Markets and shares of Caterpillar:

Both of these move together. So we group Emerging Markets $EEM, Copper $HG_F, and Caterpillar $CAT together into the same category.

Taking a step back, here's what Caterpillar looks like:

These are not charts I want to be selling. They're charts I want to be buying.

Would you rather be selling these? 

JC

 

 

 

 

 

Filed Under: