Collapse Of Global Copper Miners: Capitulation Or Sign Of Worse To Come?

“I keep following this sort of hidden river of my life, you know, whatever the topic or impulse which comes, I follow it along trustingly.” – William Stafford
 
On April 15th in an article titled If Global Growth Has Topped, Why Are Copper Miners Bottoming?, I took a look at the relative price behavior of Copper Miner stocks relative to the S&P 500. I noted in that article that the odds of a “mini-correction” had risen and that one of the reasons I believed it would be shallow was what appeared to be a bottoming out of Copper stocks. My conclusion at the time was that if one assumes Copper is a signal of economic growth, a bottoming out means growth expectations would soon return.
 
Following the May 6th Greece and France elections though, market internals turned considerably more negative, particularly as credit spreads dramatically widened as I noted during a CNBC interview. Below is an updated chart of the one I used on the April 15th writing, which is a price ratio of the Global X Copper Miners ETF (COPX) relative to the S&P 500 (IVV). As a reminder, a rising price ratio means the numerator/COPX is outperforming (up more/down less) the denominator/IVV. A falling ratio means the opposite.

 
Notice that the “bottom” I believed was forming in mid-April was cracked badly in May as concerns grew once again over Greece leaving the euro (FXE), Spain’s (EWP) weak banks, and slowing growth in China (FXI). The decline was rather sharp, and seems to undo the argument of it being a reason for the correction being a minor one. However, the longer and deeper the underperformance, the more likely a snap-back occurs.

The question now is simple. Was the collapse in Global Copper Miners a sign of capitulation after which a “V” occurs, or a sign of worse things to come for equities?  I maintain my stance that we are now likely nearing the crescendo to this environment, after which a big move up in equities can occur. Until clarity comes though, a further period of deterioration likely continues.

Disclosure: This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Pension Partners, LLC in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Pension Partners, LLC expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.