Marching In Lockstep
This is why I mostly gave up hunting for individual symbols in the past year.
The grid below shows the rolling correlation of the monthly return of the S&P 500® Index for the 12 months through August 2010 against a host of other asset classes, from global equities to commodities to bonds. The darker red the boxes, the higher the correlation; the darker blue the boxes, the lower the correlation. As you can see, reading from left to right, there are only three blue (risk off) boxes for the S&P 500: T-bills, investment-grade bonds (dominated by Treasuries, mortgages, and agencies), and gold.
Great visualization of the Lemming march by Fidelity. Of course if everyone is buying everything (and nothing) how long until there’s nobody left to take the other side?
So there you have it – two reasons why I don’t want to be caught long right now – I don’t trade uni-markets, I short them.
Disclaimer: When the time is right 😉 *
* Which means when my momos tell me so.