Our chart of the week displays the past six month's action in the July 2010 NYMEX copper futures. This is the most liquid futures contract trading in America right now.
We watch copper because it's a major ingredient in cars, houses, appliances, electronics, and power grids. This "in everything" attribute makes the copper price an excellent indicator of what's happening in the global economy.
Copper enjoyed a huge "stimulus" rally in 2009. Then, as you can see from the chart below, the metal suffered a correction along with most all assets in January (A). This correction took copper down to $2.88 per pound. Copper then staged a rally into the $3.60 area (B). But in the past month, copper has sold off heavily… and just yesterday, it violated that past low (C). Trend traders call this action a "downside breakout."
As we mentioned on Wednesday, the great investment question of the summer is: "Was the May selloff in stocks and commodities the start of hard times to come? Or just a correction to the intact rally?"
We don't like being the bearer of bad news, but we must note that further weakness here answers that question with, "There may be hard times to come."
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