The problem with the S&P500

Last night I was a presenter at the KWGC Region Chapter of the Canadian Society of Technical Analysts (CSTA). I always enjoy speaking to my peers. The event was well attended and my presentation focused on my experience as a sub-advisor to the Union Securities Hybrid Portfolio Program – in particular how I used technical analysis to select 5 companies that became the target of take-over bids.

During the Q & A period – I was asked for my views on the US stock market. I paused for a moment and then said – correlation, there is too much sector correlation – the high sector correlation has virtually stalled the healthy process of sector rotation which now makes the S&P500 more volatile – and perhaps dangerous over the short term.

Note the chart displaying three sectors that in “healthy” markets operate somewhat inversely – but that is not true to-day – we have different birds-of-a-feather flocking together – eventually a condition with a bad outcome.