Two months ago we made the case for gains in the emerging markets and for EEM, the ETF that tracks these markets. We continue to be bullish on EEM… and now there’s another key commodity that strongly suggests higher prices are ahead for emerging markets – Dr. Copper.
Copper is considered to be a reliable indicator of the health of the world’s economy because of its widespread applications in most sectors of the economy.
Copper made its lows last year in early 2016 and has been climbing higher. It triggered a new Stock State Indicator (SSI) Entry signal in December 2016.
Our volume-at-price (VAP) chart shows that copper has been trading in a narrow range and looks to break higher above the current resistance level around $2.70.
Once it breaks through this strong resistance level, it could move almost immediately to the $3.00 level.
A very bullish sign for copper comes from the futures markets for copper. The open interest in copper futures contracts has never been higher.
The commercial traders are beginning to accumulate copper contracts, but are still not at super-bullish levels. This shows there is a lot of room for copper to move higher.
Our proprietary time-cycle forecast for copper shows a move higher into early 2018 is the most likely path.
Why is this move higher in copper a positive for the emerging markets and the EEM ETF?
The emerging market economies are the biggest consumers of copper. It’s used heavily in building their infrastructure and in their manufacturing. As these economies continue to grow, they will continue to use more copper.
There is an almost 100% positive correlation between the price of copper and EEM.
EEM triggered a new SSI Entry signal in August 2016. It has moved 50% higher since its low in early 2016.
Many people would think that if a stock has moved higher by 50%, then it should be avoided. We disagree with that thinking. It’s possible for EEM to move a lot higher over the coming months. We’ll continue to be bullish as long as the stock is trading strongly in the SSI Green Zone.
Dr. Copper is telling us that EEM has a long way to go. I agree with this diagnosis.
Have a good 4th of July weekend,
Richard Smith, PhD
CEO & Founder, TradeStops