CRB Commodity index has formed a base and is on the verge of a breakout. Base/Industrial Metals constitute 13% of the CRB Index. Copper is an important industrial metal. Rise in demand for copper is a sign of economic growth. Copper and Base Metal ETFs have given positive returns since April 2020.
The Copper to Gold ratio is an indicator of global economic growth and risk appetite. Rising ratio is indicative of increasing preference for risk. This ratio formed a base below February 1999 lows and closed above the resistance on daily chart today. Confirmation of breakout is required on weekly close basis.
Freeport McMoran (FCX)
Freeport McMoran (FCX) is the largest copper miner in the world and a good proxy for copper. FCX bottomed earlier than S&P 500 (SPX) at previous SPX bottoms – (FCX – SPX November 2008 – January 2016, February 2009 – February 2016). Recently it formed a low on March 19 and SPX on March 23, 2020.
FCX has given a return of 44.91% since April 1, 2020. The break above resistance of 9.50 supported by momentum indicates further upside.
Base Material ETFs
Base Material ETFs XLB, XLI and PICK are highly correlated to FCX. All are showing upside momentum on absolute basis and relative to SPY.
Strong up move in copper is usually bullish for stocks.
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