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.

Correlations-Divergences-DJT-graph

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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