In the last two weeks, in Reflation Supported By Stocks, Commodities, and Oil, and Gold, Recessions, Bonds, and 1987, we hypothesized that recent bullish moves in gold, oil, and the CRB Index were evidence of successful "reflation" of asset prices via monetary and fiscal policy. This week, we can add copper and emerging markets to the bullish evidence list. From a fundamental perspective, the desire to hold copper is based on economic need (you want to make a product), and inflation protection (you want to own hard assets rather than paper currencies).

Copper and Emerging Markets Are Worth Monitoring

When markets move in an unexpected manner, we should pay attention. In recent weeks, many market observers had noted the following:

• Copper had failed to make a new high for over nine weeks.
• Many markets have a bearish formation known as a "rising wedge".

Using these accurate observations, a case was made by some that the "rally has come too far too fast", and that copper was indicating a weak recovery. From where we sit, those were legitimate concerns, and warranted close monitoring, while giving the bull market the benefit of the doubt. If you are bearish, you would expect copper to fail to make a new high for the remainder of 2009, and for "rising wedge" formations to conclude with bearish outcomes. In the case of the Emerging Markets Index and copper, the exact opposite has happened:

• Copper experienced an upside breakout and made new highs (bullish).
• Emerging Markets recently broke out from a "rising wedge" formation (bullish).

"Dr. Copper" Says Don't Be Too Quick To Sell

If the current global rally was about to end, would we expect copper to be making new highs? On Wall Street, copper is often referred to as "Dr. Copper, who holds a Ph.D. in economics" based on the metal's ability to forecast future economic activity. Copper recently made both a new closing high and new intraday high. Copper is bullish - we need to take that into account during any correction.

Emerging Markets Shake Off Bearish Pattern

As mentioned above, many markets, including the S&P 500, currently have what is known as a "rising wedge" formation. A rising wedge is a bearish formation. However, in a bull market bearish outcomes do not always occur after bearish formations. Relative to the Emerging Markets Index, the S&P 500 is a laggard. While we are concerned about the S&P 500's rising wedge, we need to keep in mind that the Emerging Markets have already broken out of their wedge formation. If the leaders continue to lead, and the laggards continue to follow, then it is possible that the S&P 500 will also see a bullish break from its rising wedge.

No Time For Blind Bullishness

Should the breakouts in copper and emerging markets fail to hold, it would be wise for the bulls to pay attention. However, the longer these markets remain in a breakout state, the more bullish these events become. As stated above, when markets move in an unexpected manner, we should pay attention. Therefore, if you have been bearish, it may be worth your time to monitor the sustainability of recent bullish moves in copper and emerging markets. Since we are in a confirmed bull market, the odds favor bullish outcomes until proven otherwise. We will continue to monitor all markets very closely, while continuing to give the bullish trends the benefit of the doubt.