The recent increase in global copper inventories and the inability of copper prices to break out when other leading market indicators are imbued with economic optimism is a curious thing, writes the staff at

In our October 15, 2012, article, Trends That Can Make All the Difference, we called attention to the underperformance of some key market indicators following the announcement of QE3 in September. Specifically, we focused on copper, oil, the Dow Jones Transportation Average, and the Philadelphia Semiconductor Index.

We are taking another look at these indicators today, many of which are behaving in a way that seemingly portends good things for the economic outlook. By extension, that should mean good things for the earnings and stock market outlook as well.

These indicators, however, are not flashing a unanimous and indisputable sense of optimism about economic growth prospects.

There is a peculiar laggard in the mix; and it is the one indicator you might least expect given the market's optimism over the US housing recovery, the surge in auto sales, and the growth pickup in China.

That indicator is copper.

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Time and Attention
At the time of our October post, we were not certain what the underpeformance of these four, leading indicators meant. We averred that it could simply be a case of profit taking after a big run leading up to the actual announcement of QE3 or that it could perhaps be a tacit signal that the market's confidence in the Federal Reserve to turn the economic and earnings tide in short order was waning.

The chart below shows the run-up to QE3 and the underperformance afterward into mid October.

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Our concluding thought was that more time was needed to assess the performance of these leading market indicators and that the eventual path they followed—good or bad—could make all the difference for the market outlook.

We added that the manner in which the fiscal cliff debate played out would matter greatly in terms of dictating their direction.

Well, with the passage of time—and the passage of an income tax rate deal that averted the full impact of going over the fiscal cliff—these indicators have charted a new course that is drawing a lot of hopeful attention.

Paging Dr. Copper
Since our October post, the Dow Jones Transportation Average has surged 16% to an historic high; the Philadelphia Semiconductor Index is up 13%; and oil prices have jumped 5% to $96.06 per barrel.

It has been a different story for copper, however.

Copper prices are 2% lower today than they were in mid October.

To be fair, copper prices have perked up since mid November, yet the trajectory of the move belies the animal spirits that are stirring in other indicators.

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This divergence bears close watching for the simple reason that copper is used extensively in industrial end markets and is euphemistically referred to as "Dr. Copper," because demand for the metal provides insight on the health of the economy.

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