Long-term Copper pattern warns of GDP slide ahead

Business cycles in the US and other majors often are accompanied by rising and falling industrial commodities prices. The normal tendency of for copper, as a stalwart representative of the industrial materials sector, to see prices continuing to rise into the precipice of GDP retrenchments, though with the new highs in copper prices failing to generate higher quarterly RSI readings, aka bearish divergence top pattern. We could use monthly data, too, but have shown quarterlies on the attached chart to coincide with GDP data in the US.

Miniature bearish divergences between the price of rising copper and lower copper RSIs (bottom chart) can be seen in 1994-95 and 1999-2001 periods. We can see the havoc extremely easy monetary policy created in copper prices after the the early 2000s GDP pullback. The next bearish divergence pattern between the 2006 and 2Q 2008 copper peaks was a much more extreme setup. The bearish divergence of lower RSI readings was spectacularly followed by the late 2008 crash in US GDP. Skyrocketing copper prices in second quarter of 2008 came just before the bottom fell out of the equities markets and the USD began its 24% surge into its Nov 2008 initial deleveraging peak. A massive head fake, unless were attuned to the divergence threat.

USD price action the past few weeks is scarily reminiscent of the late summer of 2008. What is potentially more terrifying is the even more enormous, overbought bearish divergence between this year's new peak in copper prices and quarterly RSI readings that failed to confirm the 1Q peak and are miles below their 2006 peak. GDP growth has already begun to slip this year from last year's recovery highs. Copper prices have this week broken well below their lows of the year as well as the uptrend line off the 2008 lows. That breakdown looks eerily reminiscent of the one that occurred in 3Q 2008. Hang onto your hats and don't be caught short dollars.