Using Longer-Term Correlation to Predict MarketsIn the chart above, I display a daily chart of gold at the top, followed by the graphical 90-day correlation coefficients between gold and various asset classes. I do this kind of analysis at times when I feel a major inflection point is incoming. It is very handy when everything is moving quickly, since you can make the right choice after the dust settles. Moreover, you can anticipate what will happen and get into positions during the brief period of pandemonium. I will say from experience that being on the right side of certain markets before the final directions are determined is perhaps the most profitable way to trade markets.
It is also extremely difficult to do and requires a thorough analysis of each major interrelated asset that is involved.
In my opinion, and based on these correlation readings, I am essentially bullish on gold, bearish/neutral on everything else. And, when you really think about it, it makes a ton of sense. Let me explain briefly.
I am not sure how anyone qualifies an asset class as "overbought," but just a quick glance at any equity index's monthly chart should be enough. All of them are so overbought that I do not feel the need to substantiate the claim with an indicator reading of any kind.
The same goes for Crypto, except double.
DXY and Oil are historically quite inversely correlated, and would imagine that they diverge as a result of a crypto-induced equities selloff.
That's right - amazingly enough, it seems that the "safe haven" known as Bitcoin is actually what is holding equities up so high on the backend. I think.
In any case, I hope this serves trading society well as volatilty soon approaches.
-CorrPigEarningsMiss
TVC:GOLD
TVC:SPX
TVC:DXY
CURRENCYCOM:OIL_CRUDE
BITSTAMP:BTCUSD
