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Dr. Copper Gives Comeback Clean Bill of Health

Contrary to popular belief, better than expected earnings are not the reason why the stock market has roared back from its 2010 low.

It’s the improving macroeconomic picture signaled three weeks earlier by ‘Dr. Copper’, the nickname for the metal traders say has a PHD in economics because of its ability to anticipate a recovery.

While worries about a European crisis and China slowdown were at a fever pitch, copper quietly put in a bottom on June 7 and is now up more than 20 percent from that low. If history is any guide, the stock market should follow. Currently, the S&P 500 is up more than 8 percent from its closing low for the year marked on July 2.

The rise in copper and other commodities “reflect worldwide demand and in U.S. markets,” wrote Laszlo Birinyi, in his firm’s August commentary. “Given the record of economists over the last several years vs. the market, where would you vote?”

Copper continues today to buck the weak picture portrayed in government data and economists’ research. The GDP report on Friday showed second quarter economic growth slowing to a 2.4% annual rate from 3.7% in the first quarter. This weekend on ‘Meet the Press’, Former Federal Reserve Chairman Alan Greenspan mentioned the possibility of a double dip recession.

The iPath Dow Jones-UBS Copper Subindex ETN is one way for the regular investor to play the move in copper directly or at the very least, pair it up against the S&P 500 on a chart to use as a leading indicator.

While Exxon Mobil and gold-miner Newmont Mining have struggled since reporting earnings this season, Freeport-McMoRan is among the best performers since report results and providing guidance. Shares of the world’s largest copper producer are up more than 20 percent in the last month

“Our order books are filling more strongly than we have seen in some time,” said Freeport CEO Richard Adkerson on the company’s earnings conference call. “Overall the copper markets that we are seeing underground, day-to-day in the US, Northern Europe, and to some extent in Korea and Japan, are stronger than we’ve seen them in some time.”

To be sure, copper and commodities have been as fickle as some of the most two-faced economists out there. Commodity prices fell the most in May since the fall of Lehman Brothers and yet Armageddon didn’t come.

But with the Euro and Chinese stocks – the center of global demand worries -- confirming this latest move higher, maybe its time to put your faith back with the good doctor.

For the best market insight, catch 'Fast Money' each night at 5pm ET, and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC.

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Trader disclosure: On Aug 2, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Seymour owns (AAPL), (F), (GOOG), (POT), (BAC), (C); Grasso owns (ASTM), (ABK), (BAC), (BA), (BGP), (C), (CSCO), (DYN), (JPM), (LPX), (MO), (NDAQ), (PFE), (PRST); Terranova owns (AKAM), (APA), (AXP), (BAX), (BBY), (BMO), (C), (COP), (CREE), (CSX), (CVS), (EMC), (FCX), (GOOG), (GS), (JNPR), (JOYG), (KOL), (MMM), (MOS), (MSFT), (PCP), (PEP), (PFE), (POT), (RIMM), (TER), (SKX), (SU), (UAUA), (WYNN), (XBI); Edwards own (RIMM)

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S&P 500
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FLEX
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NEM
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XOM
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IPATH DU COP TRSI
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