A Good Early Prognosis From Dr. Copper

Many analysts and market commentators have referred to copper as 'Dr. Copper,' because it is considered to be 'the only metal with a Ph.D. in economics.' That is, copper prices have historically has been considered to be an excellent barometer of the overall state of global economic activity because of the metal's widespread use in industrial applications and its ability to often forecast emerging economic trends. This theory is supported by copper prices' close positive correlation with both the Dow Jones Transportation Index and the Select SPDR Industrial Sector ETF (XLI).

In our March 28th Commentary entitled Breakout In Copper Prices Could Lead US Stock Market, Economic Rebound, we discussed a newly-emerging bullish breakout from a multi-year chart pattern in copper that signaled the beginning of a new major bullish trend. Since that report, the nearby copper contract has spiked up to 424 (US cents per pound) as of this morning, a 12% rise from 380 back on March 28th. Meanwhile, the Dow Transports have coincidentally risen by 63o pts or 13% and the S&P 500 has risen by 108 pts or 8%.

Although recent price activity in copper has been very positive lately, we note that it is still in the early stages of this bullish breakout and is not completely out of the woods yet.

Therefore, we are closely watching the direction of copper prices from here as not only an indication of copper's longer term trend, but also a leading indication of what to expect from both the US economy and US stock market for the rest of Q2 and into the second half of 2008.

So, to keep your portfolio healthy, listen carefully to what "the doctor" has to say...