Tuesday, August 8, 2017

Are Copper Prices Ahead Of A Correction?

It looks like a short-term divergence between copper prices and the copper dollar index is in the making. Look at these two charts:

source: Simple Digressions

To remind my readers, the copper dollar index is built in the same way as the Goldollar index:

"It is calculated by multiplying the price of copper by the U.S. dollar Index and its purpose is to cancel the effects of currency fluctuations on the price of copper. By comparing it with the spot copper dolar index an analyst can determine if there is inherent strength/weakness in the price of copper"

Now, as a rule, copper prices and the copper dollar index go in tandem. However, if there is any divergence between these two instruments, caution is advised.

The two blue arrows on the chart above show this pattern. A few days ago copper prices broke above their resistance at $2.78 per pound but the copper dollar index is still below a similar resistance level. If I am correct, copper may start its correction soon.

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