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Dancing the Tango

December 02, 2013

Market correlations are an amazing science and trader’s tool to ensure success. We often look for “confirmations” of new highs between the indexes to ensure that the uptrend is intact. This is the underlying basis for the Dow Theory – any new high in the Dow Jones Industrials must be confirmed by a new high in the Dow Jones Transportation index. The best source for modern-day correlation analysis is theĀ MRCI.com page. This well-established website has been cited many times by Linda Raschke for their in-depth analysis. Below is an example showing just how closely all of our US markets are linked:

This is a nice snapshot in time as all markets are walking in lock-step. What we will want to watch in the future is any breakdown in this relationship as volatility picks up (an imminent event based on VIX signal).

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