Copper Warning: Metal's Slide Is 'Pricing In Global Recession'

The price of copper hit a high for the year on April 8, three weeks before the S&P 500 hit its bull market high and then embarked on a vicious sell-off that intensified Thursday, bringing the stock benchmark to the cusp of a bear market.

Copper Tubing
Macduff Everton | Iconica | Getty Images
Copper Tubing

Copper, nicknamed ‘Dr. Copper’ because of its predictive abilities about the global economy, plunged on Thursday, signaling more stock losses may be ahead.

Copper is “pricing in a global recession,” said Alec Levine, a derivatives strategist with Newedge Group.

The S&P 500 was headed for a new 2011 closing low Thursday before a late rebound brought it back below levels hit last month. At its low point Thursday, the stock benchmark was down 18 percent from its high for the year reached on April 29.

“There is an old saying that every stock bull market has a copper top,” wrote Jeff Hirsch, who runs the Stock Trader’s Almanac newsletter, in prescient note to clients at the start of March. “While not entirely true, as a key industrial material and benchmark of economic growth, copper tops have coincided with stock bull market tops on enough occasions to warrant concern.”

The strategist, who bases his calls on historical patterns, updated his warning Thursday, saying that financial markets would now capitulate over the next several weeks. However, Hirsch noted that it could be time to step in and buy as markets have historically bottomed after this type of panic selling.

A European credit crisis after two Greek bailouts has gotten the blame for most of the downturn in the stock market. But, the accompanying selloff in copper is telling us that the economic slowdown is wider spread, occurring in the U.S. and emerging markets as well, traders said.

In fact, many traders blamed a weak manufacturing measure from China Thursday for the bulk of the equity losses.

“The shadow banking system in china, based on copper as collateral, is unraveling,” warned Brian Kelly of Shelter Harbor Capital. “What’s more, European banks are the largest provider of credit to emerging markets.”

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