S&P 500 Relationships & Correlations

Looking at some S&P 500 Index relationships and correlations  is very important because it might help you time a reversal and/or potential bottom in the market. Will you be able to use any of these correlations to exactly time the reversal/bottom? No. But you can use these to help with confirmation and/or tell on your thesis. You will be able to use the relationships and correlations to help you determine where the market might be heading.

Below you will find the Weekly charts of the S&P 500 and several other products.

The Charts

Note: All weekly charts. S&P 500 is dotted line

S&P 500 Index vs WTI Light, Sweet Crude Oil

There is a very tight positive correlation between the Index and Oil. When Oil goes up, so does the market. Most of them time the correlation is followed very closely without any breaks. The only time we saw an actualy disconnect was in late 2008 when the market bounced but oil stayed flat.  So if we want the market to go up, oil must do the same.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

S&P 500 Index vs 30 Year U.S. Treasury Bonds 

Here is the S&P with the 30 year bonds.  While the correlation is not as tight, there is some type of negative correlation here.  Usually when bonds rally, Stock suffer. And Vice-versa. However this correlation is not as strong as oil. But generally, if we want stocks up, bonds cannot be really rallying.

 

 

S&P 500 Index vs Gold
Here is the index with gold. Surprisingly, there is a pretty solid positive correlation here. For the most part, when equities rally, so does gold. There are only two times that Gold has disconnected from the S&P and that was during the March 2009 bottom and right now. I totally expect some mean reversion here sometime some. Gold has to come down and stock have to go back up soon.


 

S&P 500 Index vs US Dollar 
Here is the index compared with the US Dollar. This correlation is very choppy. While some claim that the dollar needs to selloff so the market can go up, this has not always been true. As you can see. From Late 2009 to Mid 2010, both the dollar and market rallied. Also, as you can see, when the dollar bounces, the market does not really react heavily. So in conclusion, while there is some type of relationship here, it is not omnipresent.


 

S&P 500 Index vs Copper
The relationship between the market and copper probably has to be the strongest one. As you can see, there is a positive correlation that is very very tight. There has only been two times that this correlation has diverged. The first time was when copper bottom and recovered when 2009 hit. We saw a positive divergence and shortly after the equity market followed. The second time was when we bottom in 2010, copper recovered much faster before the market. Right now, the equity markets have sold off much more then copper, indicating to me that we see some type of mean reversion here—either copper sells off more or the Index bounces. Watch for a positive divergence here with Copper in order to get a tell on if the market will recover.

 

Tags: $SPX, $SPY, $HG_F, $CL_F, $GC_F, $DX_F, $ZB_F, $GLD, $TLT, $UUP, $JJC, $USDX

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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