Is a Correction in Stocks Imminent?

Copper futures tanked today.

While gold and platinum prices were little changed, silver slid nearly 1% and copper gave up the ghost, dropping nearly 3%.

Does this mean a correction in stocks is imminent?

Not necessarily.

But you should consider a short copper position as a hedge, regardless.

Here’s the chart of copper futures. I’ve had my eyes glued to this chart for months now. Take a look…

See larger image

The resistance zone, between $3.30 and $3.40, has been strong, keeping bullish advances in check since May. And as price broken bearishly out of the consolidating wedge pattern (converging white lines), it was only a matter of time before copper bears pushed prices below a support level at $3.20.

That support was broken today – convincingly broken – so the next stop on the way down is $3, or another 5% lower.

With copper sliding, many investors will take this as an omen for the equity markets. “Dr. Copper,” as it’s affectionately known, has a good history as a leading indicator of equity markets.

At least, that’s the case when equity markets are not under the influence of unprecedented monetary stimulus.

And, it’s the case when the copper market’s supply and demand forces are fairly well-balanced.

Today, neither is true.

The Fed is still stimulating. And there’s an oversupply of copper on the global market.

That sets up an interesting situation as we head into year-end: equity markets could remain strong… AND copper prices will likely remain weak.

Make sure you have a short position in copper, as a profit opportunity in its own right, or at least as a hedge to long equity positions.

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.