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Copper and S&P Part Ways—Which Has It Wrong?

Monday, 20 May 2013 | 10:55 PM ET
Don't Ignore Copper Trade
David McAlvany, CEO of McAlvany Financial Group says the divergence in trade between the S&P 500 and copper means one market is getting it wrong and he expects copper to bounce back.

The big divergence over the past few months in the direction of the S&P 500 and copper, which historically trade in tandem, has one strategist questioning which market is getting it wrong.

David McAlvany, CEO, McAlvany Financial Group said it doesn't make sense that S&P 500 should motor higher, while the sell-off in copper continues.

(Read More: 'Dr Copper' Attempts Some Self-Healing)

Even though McAlvany expects copper to play catch up with the U.S. benchmark, he warns that the parting of ways between the two suggest that equities are moving on something other than economic activity and maybe a correction is coming.

"Either copper is going to play catch up and move up 10, 15 percent or we have the same sort of 10, 15 percent return to earth in terms of the S&P," McAlvany told CNBC Asia's "Squawk Box" on Tuesday.

Tom McHugh | Photo Researchees | Getty Images

McAlvany's bet is that copper prices will bounce back in the next three to six months as global economic data turn more positive in the second half of the year.

(Read More: 'Dr Copper' Tells Markets the Party's Over: Albert Edwards)

McAlvany's comments come as benchmark copper on the London Metal Exchange rose to its highest level in almost a week to $7,399 a ton on Monday on the back of a weak U.S. dollar and falling inventories in Asia.

"This [copper's rise] is I think really a sign of things to come; at least for the next 90 to 120 days," McAlvany said.

(Read More: S&P Won't Hit 2,500 Until 2017: Strategist)

While the commodity has rebounded from 18-month lows seen earlier this month when it went below $6,800 a ton, it is still 13 percent off a yearly high hit in February.

The benchmark S&P 500 Index, meanwhile, is up 14 percent year to date at 1666.29.

— By CNBC.com's Rajeshni Naidu-Ghelani; Follow her on Twitter @RajeshniNaidu

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