ETF Trading with Larry Connors: Correlations, Gold and Jackson Hole
Some notes of interest today.
1. The 50-day rolling average of the correlation among S&P 500 stocks is the highest it’s been in 3 decades (it’s above .80). It just surpassed the correlation highs seen in October 1987 and has easily surpassed the correlations seen in 2008.
2. While the S&P correlations are occurring, there is a decoupling of correlations among asset classes with Gold and Stocks now moving in opposite directions. (The CME raising margin rates late yesterday was the worst kept secret in the world).
3. Much of the above is being caused by major hedge funds panic-exiting gold and shorting U.S. stocks (and raising cash levels ahead of Jackson Hole on Friday). Soc Gen is reporting that hedge funds have their highest equity short positions since 2008.
Overall the market is overbought and is beginning to trigger some short signals in the major ETFs (very early stages) along with some early buy signals in gold due to the pullback. The potential for one very large move in stocks and gold in one day is high and that move could happen as early as tomorrow after Bernanke’s speech at 10 am ET.
The above is from Larry Connors’ Daily Battle Plan.
To learn more about the Daily Battle Plan – including access to Larry’s daily ETF trading signals, click here for more information.
And for more on ETF trading, be sure to visit us here to check out the book that Stocks, Futures and Options (SFO) Magazine called one of the best trading books of 2009: High Probability ETF Trading: 7 Professional Strategies to Improve Your ETF Trading.
Larry Connors is founder and CEO of TradingMarkets.com.