Often times the ushering in of the New Year brings many changes to trading and investing - some are welcome; some are not. Thus far in 2012 we have witnessed a lot of cross-currents in the market as well as some well worn correlations being invalidated. Luckily after 1 week in 2012 the picture is becoming a bit clearer, but we would point out a couple of developments worth noting that could derail the bulls hopes.

If we take a step back and focus on the 'I' component of our IPA Trade Methodology, one has to be very cautious at embracing a bullish tone at this juncture. This is where correlations play an integral role in deciphering/supporting what the charts are illustrating. While it is possible the recent string of solid economic data in the US may propel equities higher, the price action in copper and AUD/USD suggests otherwise.

First, let's take a quick technical look at copper prices:

Click on image to enlarge!

WWeak copper prices, historically speaking, have always been a sign of future economic contraction. So, despite the recent pick-up in US economic data, copper prices may be reflecting more on the prospects for Europe and China (40% of global consumption is in China). Drilling down a bit further we can see how closely tied AUD/USD is to copper prices. This chart sheds light on why AUD/USD was lagging to the upside last week despite all the positive news in US data and the S&P 500.

AUD/USD vs. Copper

Click on image to enlarge!

We are left with a forecast that involves a potentially weaker AUD/USD in the days and weeks ahead but over the next 1-3 days AUD/USD does have the ability to rally on the heels of a short-term bullish S&P 500 forecast. Pretty cool how combining different time frames/wave count and correlations can yield 2 different but possibly 2 solid trades.

For more from Dave, visit Aspen Trading for more updates.