Our pal Brian Hunt has been doing an excellent job of finding favorite economic indicators that are surprisingly breaking out, rather than down.
Last week, Brian noted that Dr. Copper was surging, despite the overall gloomy economic outlook:
While you can barely watch a minute of financial television without hearing about horrid unemployment numbers, gloomy sentiment toward stocks, or weak manufacturing numbers, the price of copper is actually surging right now.
As we frequently mention in Growth Stock Wire and on our sister site DailyWealth, copper is one of the world’s vital infrastructure ingredients. It’s in nearly everything around you… from cars and plumbing to computers and appliances. This makes the price of copper rise and fall with the health of the global economy.
During the 2008 credit crisis, copper suffered an incredible 66% fall. Investors were terrified to own anything dependent on a healthy economy. Like most assets, after the crisis passed, copper enjoyed a huge rebound. This rebound stalled out in April and even looked to be in danger back in June, when the metal hit an eight-month low.
But note the big rally to the far right-hand side of the chart below. Copper has staged a rebound from $2.80 per pound to its current price of $3.48, near its bull market high around $4. This is incredible price strength that all investors should take notice of…
And I have to admit, I was also prematurely preparing Dr. Copper’s eulogy back in June, when things looked bleak for the good doctor.
Adding to the bullish case is the price action of Cummins – back to Brian:
Last week’s move in the market drove one of our favorite economic indicators to a fresh 52-week high.
Longtime readers know we monitor shares of Cummins (CMI) for a quick read on the global economy. Cummins is the world’s largest independent maker of high-horsepower diesel engines… the kind that power bulldozers, cranes, heavy trucks, mining shovels, and electrical generators. This makes its share price rise and fall with the pace of economic and infrastructure activity.
For example, we noted the stock’s big breakdown in January 2008, which came well before the economic crisis. Last week, however, Cummins wasn’t breaking down… it was breaking out… to an amazing all-time high.
Some investors are worried the world will enter a “double dip” recession soon. There are valid reasons for these concerns. But one has to be mindful of Cummins’ new price strength (and as I noted last week, copper’s new price strength) before getting too gloomy on things.
While Cummins’ strength isn’t enough for us to expect an economic boom, it is enough for us to say, “Yes, there are things worth worrying about. But when you look at this super strength, you have to say the glass is half full – maybe even three-fifths.”
Though on the bearish side of things, financial stock price action has been tepid, crude oil is stuck in a trading range, and Chinese stocks topped way back last summer - so all is not exactly coming up roses, either.
But as Brian puts it – the glass of economic water is at least partially full. Perhaps it’s the low interest rate environment…perhaps the record levels of stimulus…perhaps QE…or some combination of all 3. The vast complexity of the financial world and global economy makes simple dissection nearly impossible – so, we’ll continue to watch these key charts for cues, because at the end of the day, the market is always right!
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