Correlations/Divergences & $DJT

I might prefer to short-term trade, but I spend hours looking a longer-term trends, to determine my short-term ideas. One of my “go to” points of research is to look at correlations and divergences. What do I look for? I look for extreme divergences, in indexes that usually have tight correlations. For instance, I have been warning for months about the under-performance of the Dow Jones Transportation Index relative to the S&P 500 index. When this divergence becomes too wide, usually the indices snap back in line. As I write this the DJT has still not had a bounce. It is now at October 2013 levels. If this “correlation” is to work, then the SPX needs to fall to at least 1770.


Chris Brecher

Chris Brecher Stock Vice President

Chris Brecher grew up in Jacksonville, Florida. Though he went to college for Paleontology and Marketing, he settled for being a Stock Broker. In watching the brokers in his office lose every time by taking shots in options, Chris wanted to find out who was making money on the other side.

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