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Earthquake spike tests the 'Dr. Copper' theory

Many traders look to the copper futures market to provide clues about where stocks are headed. But as copper spiked on Wednesday after an earthquake struck off the coast of Chile, Wall Street was once again reminded that moves in commodities markets may not be quite as predictive of broader economic trends as one would hope.

On Tuesday night, an 8.2-magnitude earthquake hit the seabed off of the northern coast of Chile, resulting in six deaths and the evacuation of nearly a million people.

The news also spiked copper prices, as traders became concerned about supply given that Chile is the world's No. 1 producer of copper. But after hitting a three-week high in early Wednesday trading, the metal moderated as copper producers said they were not impacted by the quake.

Read MoreCopper hits more than 3-week high after Chile quake

Copper futures are closely watched by many, given the widespread theory that "Dr. Copper" provides a "check-up" on the health of the global economy. Copper indeed has a wide multitude of industrial functions, making copper usage a rough gauge of worldwide industrial demand. And copper and the S&P frequently move in the same direction.

However, over the last 12 months, stocks have soared and copper has tanked. This led many to warn that the action in copper was presenting a warning sign for stocks. But as copper's move off of the earthquake indicates, commodity prices quite often march to the beat of their own respective drums.

"For any sort of commodity, the end-all, be-all is that it's supply-and-demand-driven," said Brian Stutland, the CIO of Equity Armor Investments. "And supernatural events and surprises happen in the world that affect the supply-and-demand economics."

Munshi Ahmed | Bloomberg | Getty Images

For Mark Dow, a former hedge fund manager who writes at the Behavioral Macro blog, the real issue is that copper doesn't tell us nearly as much as it used to.

"Assets are driven by different things at different points in time," Dow said. "I tend to think the role of copper as an indicator of economic health is largely overstated. First of all, we use copper to a lesser degree than we used to, so that for a given amount of global demand, copper input has declined. Second, speculators now play a larger role in commodities markets than 15, 20, 30 years ago when copper developed its reputation."

For those two reasons, "the Ph.D. that copper has in economics is a vestige" of an earlier time, Dow told CNBC.com.

Still, many traders continue to pay close attention to copper as an indicator.

"Despite the fact that copper hasn't been as immediate a barometer as it used to be, it's foolish to ignore it," said Jeff Kilburg of KKM Financial. "It's still telling a story, it's just that no one's listening right now."

Read MoreThe scary factors behind copper's price plunge

Kilburg says a nuanced reading of copper's signals can still be informative.

"Algos don't know how to read Dr. Copper, but a 60-year-old money manager who manages $4 billion in Philadelphia—he's listening, and he has caution right now because of it."

—By CNBC's Alex Rosenberg.

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