Over the past month and a half, many people have made a big stink about copper's divergence from the S&P 500, and Jonathan Krinsky has been among them. In a Feb. 19 note, Miller Tabak's chief technical analyst wrote that a copper breakdown could lead to lower stock prices.
Now he's changed his tune. On Tuesday's episode of "Futures Now," Krinsky said, "The initial breakdown in copper is not necessarily a bearish indicator, if we are getting a structural change where a positive dollar is positive for stocks."
In other words, the negative correlation between stocks and copper can actually be explained by a third factor: the U.S. dollar. Since stocks and copper both tend to move inversely to the dollar, a rise in the currency tends to mean a drop in both copper and stocks. However, while copper's negative relationship to the dollar has held, we have recently seen stocks and the dollar become positively correlated.
You can see it on this chart:
Normally, stocks and copper would move together. But if stocks and the dollar are rising together, we should not be too surprised to find copper and stocks moving in opposite directions.
Krinsky noted that this environment has some historical context.
"If we look back at prior periods, specifically 1983 to 1985, and then 1995 to 2000, we saw the dollar and stocks move materially higher, while copper and a lot of commodities actually moved lower," he said.
Krinsky's bottom line? Those broad generalizations don't apply in all scenarios—so all the ballyhooing about "Dr. Copper" and what it might be saying about the S&P is simply based on antiquated models.
As Krinsky puts it, "You have to be prepared to change with the market."