Copper is an industrial metal, and its price action can be a broad gauge for the economy. Copper tends to decline in periods of economic weakness, rising in economic recovery. The action of Copper vs. the S&P 500 (SPX) since early 2023 suggests that the U.S. economy and stock market could soon be declining.
The weekly continuous Copper futures chart (HG1!) courtesy of Trading View illustrates its relationship to SPX.
Since early 2023 Copper has been diverging from the SPX. Please note the recent divergences since late 2023.
Cooper also has a clear Elliott wave pattern from its peak in March 2022. The decline into the July bottom counts best as a five-wave pattern which implies the first decline in a developing bear market. The subsequent movement appears to be a developing Elliott wave – Horizontal Triangle. This structure is composed of five sub waves each of which further divide into three – wave patterns or a combination of corrective patterns. Most of the time Horizontal Triangles contract between converging trendlines.
The presumed illustrated Horizontal Triangle could be complete or very close to completion. The final sub wave “E” are typically much smaller relative to the other sub wave. It’s possible Minor wave “E” could be complete at the 02/16/24 high. If not it could be complete in a few trading days. A move above HG1! – 3.9740 implies Minor wave “C” is still developing.
After completion of a Horizontal Triangle there’s typically a trust in the direction of the main trend, which in this case is down.
Sometimes the length of the post Horizontal Triangle thrust is measured by the widest part of the triangle, which in this case is Minor wave “A” 1.22 points. Assuming Minor wave “E” peaked on 02/16/24 high of 3.84, this projects a move down to 2.62. About a 30% drop.
If a Copper decline does occur there’s a good chance the SPX could also drop. Perhaps similar to or greater than its decline in 2022.
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