We've often talked about monitoring various indexes to try and get the MARKET'S perception of the economy. We've mentioned and have been monitoring groups like the transports (TRAN), Cyclicals (CYC.X) and various energy groups like the oils (OIX.X), natural gas (XNG.X) and the oil service (OSX.X) sectors. They're all giving somewhat mixed signals, but there have been some signs of recovery in all of these.
The Transports (TRAN) have perhaps been the technically strongest. The energy stocks have been somewhat perplexing as the commodity itself hasn't really budged, but we do know from history that the stocks themselves tend to move ahead of the commodity (up and down).
In last night market wrap on premierinvestor.net, I told subscribers that I was busy turning over stones and trying to find anything conclusive toward economic growth. Each piece of the transports, cyclicals, and energy are a piece of the puzzle and they are starting to fit together towards the picture of economic growth, but they just aren't fitting together.
One stone I've been keep an eye on is the Copper futures. In today's market monitor on OptionInvestor.com I mentioned an upside alert in the March Copper futures (hg02h) when this contract pierced above its still falling 200-day MA. Many economists look for a rise in copper prices as a sign that economic growth is underway.
So... as it relates to the longer-term 200-day MA, here may also be a development that needs to be monitored. While the futures did pierce the $0.71 level, its drifted back below as some selling as shown up. This is just as "tentative" of a move as we've probably seen in the broader stock market on its attempts to rally above some of their 200-day moving averages.
March Copper futures (hg02h)
Sometimes it's "helpful" to get away from the stock market and look at some commodities to see what that market may be saying. Many economists look back at history and have pointed to copper prices as being a good predictor of the economy. If that's the case, then we're noting the recent jump higher from the recent pullback of $0.65 as if to say "don't throw dirt on me yet" as copper prices jumped right back to the still declining 200-day MA.
Here too we see that it is just too soon to say for sure that the economy is recovering based on copper prices, but a break above the recent highs of $0.724 could be a trigger for bullish economic thoughts.
Phelps Dodge (NYSE:PD) $32.87 +3.17% is a large copper producer and that stock is responding today. We will note that the point/figure chart for the March copper futures currently carries a bullish vertical count of $0.845 with it.
If copper is going to $0.845 longer-term, then I'm thinking some good fundamentals would follow Phelps Dodge (PD).
Phelps Dodge Chart - $1 box
I like Phelps Dodge (PD) as a bullish play for 1/2 position long. The stock remains below bearish resistance, but I do think a rally to the $40 level near-term is possible. I like this trade with a longer-term perspective and would begin with a stop at $29 (want to give a little room to avoid a "shakeout" at $30). With a bullish longer-term price objective of $56, I don't mind risking $4 to potentially make $23 longer-term.
Don't forget those Treasury bonds. We're seeing continued selling in the Treasury market today and that fits the scenario for the Fed not tightening further. That would have me believing that the Fed thinks economic growth is at hand. The question will always be "what rate of growth."