Correlations Behaving Oddly
02/04/2014 6:00 am EST
Even if you don’t trade these markets, it’s helpful to pull your perspective up to the cross-market money flow landscape for a broader view of global trends, says Corey Rosenbloom of AfraidToTrade.com.
An interesting event is taking place from the intermarket or cross-market money flow perspective and it’s worth taking a closer look.
For one, we’ve seen continued strength in US stocks and relative weakness or short-term downtrends in the other main markets.
Recently, we’ve seen a clear counter-trend movement as seen clearly on the five-market chart below:
First, let’s note the persistent uptrend in the US stock market.
Let’s balance that with persistent and somewhat surprising downtrends in ALL four other main asset classes. Typically oil and stocks trend together in the same direction—it’s odd to see them separate for long periods of time.
Even stranger is to see the typical “risk-on” or offensive markets (commodities and equities) trend persistently in the same direction as traditional “risk-off” or defensive markets such as US Treasuries and the US Dollar Index.
However, all markets have steadily declined through the end of 2013 while stocks continued their stellar rise.
Going into 2014, these trends have all morphed into a clear counter-trend situation where uptrending stocks fell yet all other “downtrending” markets rose.
The US Dollar Index bottomed in October while crude oil, gold, and US Treasuries bottomed (short-term) near the end of December.
Since then, money has flown into these markets and—relatively speaking—out of US equities.
By Corey Rosen bloom, CMT, Trader and Blogger, AfraidToTrade.com