Tags: Metal | Economy | copper

This Metal Will Show Where Economy Is Headed

By    |   Monday, 09 Jan 2012 08:40 AM

Within the next 15 to 30 days, I expect a breakout in a commodity that has a great history of telling us where the economy is going.

Normally, you have to track the economic reports that come out and the problem with that is that the data lag by 30 says to 90 days. 

However, if I want a more “real time” look at what’s going on, I can look to one simple gauge: Copper

Copper is one of the most widely used industrial metals. It’s in our offices, our homes, our appliances, our cars and our electronics.
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If things are getting better and the global economy is expanding, then more copper is being purchased by the producers (builders, manufacturers, etc.). As this additional buying pressures the supplies of copper; it causes the price of copper to rise.

However, if things are worsening in the economy then people certainly aren’t buying homes, cars, electronics, etc. Therefore, there’s no need for builders and manufacturers to produce more product that would just stack up as unneeded inventory at the time.

So the lack of buying in copper causes less demand upon the supplies of copper; therefore, the price of copper goes lower.

Now, with all of that said, copper is at a very interesting point. It’s been trading sideways for the last three months but in a distinct triangle pattern.

What does that indicate? It tells us that the demand (or lack of demand) from the global economy will cause this pattern to breakout soon and a clear winner will emerge from this tug-of-war.

You can view this yourself by going to a site like stockcharts.com and put $COPPER in the symbol field. The triangle started back in October and has been coiling up tighter and tighter as more time has passed.
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This type of pattern usually makes about five passes back and forth within the triangle as it hits each side and reverses. Well, there have been five passes that just completed so the breakout in copper could be days away … but certainly within two to four weeks.

As these triangle patterns squeeze tighter and tighter a huge, directional breakout occurs. It’s then that we know if the global economy is really recovering or if it’s faltering again.

If there’s a downside breakout out of the triangle pattern, then the global economy is not recovering and another recession will likely come about.

However, if an upside breakout occurs out of the triangle pattern, then the global economy is recovering and things are on the mend. (Keep your fingers crossed and let’s hope for an upside breakout.)

Once we know which way copper breaks out, we’ll know where the global economy is heading. Once we know that, we’ll know how that will affect stocks.

An upside breakout will be good for stocks while a downside breakout will be bad for stocks.

At the same time, we’ll also know how this will affect currencies too. For instance, an upside breakout in copper above the 3.55-3.60 area will cause the “risk on” currencies to flourish (like the Australian, Canadian and New Zealand dollars).

However, if a downside beak through the 3.25-3.30 area happens, then the defensive currencies will flourish as stocks fall. This would be good for the U.S. dollar and Japanese yen, for instance.

So this “one” gauge, copper, will tip us off soon as to where stocks, commodities and currencies are heading.

And the great thing about it is that we’ll get an answer from copper on the global economy long before we’ll get the economic data to back it up which will lag by anywhere from a month to a quarter.

That’s why I love watching copper. It’s just one thing to watch and it’s a consistent gauge that once it goes through definable areas on its chart it gives us a great idea of how things are really going on around the globe.

So it alerts you earlier than the actual economic reports do…and it’s more consistent than an analyst. That’s why you’ve just got to love using the chart of copper as a gauge to help you decide what to do with your stock holdings, commodity holdings and even your currency holdings.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.

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