STOCK INDEXES BREAK THREE-MONTH DOWN TRENDLINE INCREASING ODDS FOR SUMMER BOUNCE -- THREE-MONTH HIGH IN COPPER IS ANOTHER SHORT-TERM POSITIVE FACTOR FOR STOCKS --
STOCK INDEXES BREAK DOWN TRENDLINE... Stocks turned in a strong performance today. The three major stock indexes shown below closed back over their 50-day moving averages. The S&P 500 (Chart 2) and the Nasdaq Composite (Chart 3) did so for the first time since early May. Another positive sign is the ability of all three indexes to close above the down trendline drawn over their April/June highs. The next hurdle to overcome is their July highs and 200-day moving averages. The short-term stock picture does appear to have improved with the growing possibility of a rebound to the mid-June peak. The rally in stocks was supported by a rally in most commodities, most notably copper prices which hit a three-month high.
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Chart 1
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Chart 2
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Chart 3
COPPER IS LEADING STOCKS HIGHER... Commodities and stocks have been closely linked over the last two years because both are very sensitive to economic trends. That's especially true of copper. Chart 4 shows both markets peaking during April (with copper turning down first). Copper, however, has shown a pattern of "higher lows" since June while stocks declined into early July. Today, copper hit a new three month high. Although copper is still below its 200-day average, today's short-term breakout increases the odds that stocks may continue to gain some ground as well. Chart 5 shows how closely the two markets have been correlated since mid-2008. Notice also that copper (orange line) turned up before stocks at the end of 2008. Today's positive action in both markets isn't enough to signal a mew uptrend in either one. But it may be enough to continue a summer rally through the balance of July. Seasonal trends then turn less friendly into the autumn.
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Chart 4
