Where Are These Markets Going?

01/14/2014 6:00 am EST


Corey Rosenbloom

Founder and President, Afraid to Trade

Corey Rosenbloom uses intermarket analysis to examine why stocks and commodities—which usually show positive correlation—are moving in opposite directions.

TIM:  Corey Rosenbloom, we’re talking about inter market analysis.  Corey watches a lot of this to make good trading decisions in the market, so Corey, what are the things in inter market analysis are you looking at these days?

COREY:  Sure, I’m looking at the breakdown between the typical relationship in stocks and commodities.  Typically, they trade together; although, of course, in the inter market relationship, markets will peak in advance.  Typically, stocks do before commodities, but they have a positive correlation.  Since 2013, it’s actually broken down, so we see stocks continue trading higher really day after day, week after week, and of course month after month.  Commodities actually feed by the CRB Index and also gold in 2011, so they have really trended lower since then, and particularly 2013, we’ve seen that acceleration in a downtrend in oil, gold, with the exception of stocks trading higher and higher and higher.

TIM:  Now, why do you think this decoupling is happening?  Why are they now moving in opposite directions?

COREY:  I think global money flow, as people manage risk _____ funds.  Even as global countries manage risk, maybe looking to sell gold to really have these problems with the debt and deficits, so central banks possibly are selling off gold as a result, margin calls with the quantitative easing and the global stimulus measures.  We see a lot of traders expect these relationships to hold, particularly as stimulus inflates asset prices.  That has not come true.  The fears – not the fears so much, but the warnings of hyperinflation are not showing up, so I think a lot of traders were caught positioned the wrong way, to an extent, and they’re liquidating positions, so really, throughout the multiple days, weeks, and months.

TIM:  All right, now do you expect this to come back into positive correlation at some point, or do you think this is a long-term trend we’re going to see for a while?

COREY:  I hope so.  The one thing we looked at, we discussed in prior interviews, prior presentations as well, how they initially started to move differently.  A lot of times, traders get caught in the wrong direction if they expect classical relationships to go back together.  They typically do, but if they don’t, that’s when traders get caught and those types of movements actually exacerbate or continue these trend dislocations.

TIM:  All right, so does this then argue to do individual technical analysis on these markets then to really kind of get an idea of whether or not gold is going to continue to go lower, or what are you doing to try and find the good trades here?

COREY:  Absolutely Tim, that’s a very good idea.  What we look for is to just continue the technical analysis, just simple trend following, simple trend metrics, higher highs, higher lows, moving average structure, rising or falling moving averages; potentially even looking at a short-term moving average versus an intermediate term, what the orientation is, and any other metric.  Volume analytics, if possible, and any other technical analysis method not trying to call trend reversals and really not playing these traditional relationships.  That’s gotten traders into a lot of trouble trying to fight these trends.

TIM:  Corey, thanks for your time.

COREY:  Thank you Tim.

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