Some technical analysts say copper isn’t the reliable leading indicator it once was for the global economy, but copper ETFs falling below a key support line has triggered worries about the stock rally.
The iPath Dow Jones-UBS Copper ETN (NYSEArca: JJC) was down for the third straight session Wednesday to fall below its 50-day simple moving average.
“The price and output of copper have often been seen as a proxy for global growth, which makes sense given its many vital industrial functions. Its effectiveness as a conductor for heat and electricity, especially relative to its cost, has made copper a mainstay of construction and electronic equipment,” according to Real Assets Investment Research.
“Surging copper prices over the past decade or so, as part of what many refer to as the commodities supercycle, has been in large part driven by emerging market demand, most notably China, the world’s largest consumer,” it added.
From a purely technical perspective, Kimble Charting Solutions notes that copper has dropped below the bottom of a bearish rising wedge.
“Copper is frequently looked upon as an economic leading global indicator. Its track record isn’t flawless, yet major moves is copper often correlate with major moves in the stock market,” according to Kimble.
iPath Dow Jones-UBS Copper ETN