The chart below illustrates. The transportation and semiconductor sectors tend to be particularly dependent upon copper, and thus included ETFs that track them (XSD for semiconductors and IYT for transportation) in the chart below; we may be able to learn more about which sectors in particular are moving.
While semiconductors have been rallying since mid-November, the transportation sector continues to be devalued. Moreover, the overall demand for copper is declining around the world, as this Bloomberg article notes, and has decreased copper mining efforts.
As platinum, silver, and gold continue to rise while Treasuries continue to fall, copper's rally may signify greater inflation concerns. As metals have rallied while commodities have remained stagnant, the market may be signalling greater concerns about inflation in the midst of a lack of investment opportunities.
Thoughts on Trading
Copper has taken a particularly harsh beating thus far, as the chart above illustrates. As such, the bottom identified in the chart may be a critical level to watch to gauge broader macroeconomic trends; a break of that level could signify the next leg down for equities.
Conversely, copper may be a better play for those looking to profit from reflation of the money supply. As copper has fallen more than many other metals since falling asset prices set in in August of 2008, it may be due for a larger correction.
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