Copper is referred to as Dr. Copper because of its unique ability to predict economic trends – and also because it is the only commodity that has a Ph.D. in economics.

“Because of copper’s widespread applications in most sectors of the  economy – from homes and factories, to electronics and power  generation and transmission – demand for copper is often viewed as a  reliable leading indicator of economic health.”

Dr. Copper and the major world indices have moved together since the financial crisis of 2008. However, after peaking in the week of Feb 07, 2012, Dr. Copper has been leading the charge down for all risk assets. Off course there is fundamental reason for it but how do the charts look? Lets take a gander.

Copper and S&P 500 have been positively correlated since May of 2008. Below is the weekly chart of the two. $SPX (S&P 500) is the blue line and HG (Copper futures) is the black line.

Generally the two have moved in tandem. Sometimes their rate of rise or fall was different but their direction was the same. There was some divergence from Oct ’08 to March ’09. Copper bottomed in Dec ’08 and $SPX in March ’09. Another divergence was from Feb ’11 to Jun ’11.

This year too from Feb to April the two had some differing opinions. It is more noticeable in the daily chart. Where SPX moved higher from February to April, Dr. Copper stayed in a channel, which has eventually taken a downward slope – forming a flag. It could be a bullish signal though this down sloping flag is not a pure one. Now, since the S&P has remained in a range the downward pressure on copper must be coming from somewhere else – perhaps rest of the world? Let’s verify that.

The estrangement between Dr. Copper and the Chinese market lasted much longer. Below is the weekly chart of FXI – IShares China ETF – in blue and HG in black.

The two were a couple from April ’08 to November ’10. Then till July ’11 they had mild difference of opinion. Again, this year since February, FXI has shown more weakness.

With the Emerging Markets, Dr. Copper has shown a much closer relationship. Below is EEM-HG weekly chart.

The two have remarkably moved together since February ’08, although in the last few weeks EEM has shown greater weakness.

Copper and European stocks have also moved in tandem like S&P, though their pace of rise and fall has varied. Below is HG with STOXX600 index. Again, since February year STOXX600 has weakened more than copper. You can see this more on the daily chart.So Dr. Copper has shown a a great correlation with major global indices since the ’08 financial crisis. This relationship has weakened somewhat this year. A major factor for that is European crisis.

It may be a stretch but if one goes by only the charts then it seems that most of the weakness in copper is coming from weaknesses from the Emerging Market and Europe and it is the US economy which is propping it up a bit. UK is again in recession, Europe is also in recession, maybe not officially. The growth rate of China, India and other emerging markets is slowing though it is still good. US is experiencing a very modest growth. This is reflected by little divergence between S&P and copper.

The correlation between Euro STOXX 600 and S&P 500 have been very strong. However, since March ’12 this relationship has been under pressure. It seems like the S&P 500 wants to go higher but Europe is holding it back. S&P generally moved up in March when the STOXX600 was struggling but from April, it is feeling the drag of Europe’s mess.