Art Cashin On Correlation Breakdown, And Yesterday’s “Rather Odd” Market Session

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In his daily note, Art Cashin notices some weird wrinkles in yesterday’s market activity that bear some watching.

Traditional correlations are breaking down all over the place. The traditional weak dollar/strong oil/strong commodities patterns are getting less and less robust.

In his note he provides a nice time line of things.


Currency Correlation Breaks Down Briefly – The dominance of the dollar over all other assets broke briefly yesterday allowing for some rather unusual moves, at least by recent standards.

Stocks and other assets began the day looking like the same old thing.

At 7:00 a.m. (EDT), the greenback eased back a bit from its near breakout rally of recent days.  That allowed the Euro to rise and bring gold, oil and the S&P futures up along with it.

By 8:00 a.m., the Euro firmed a bit further but oil, gold and the S&P began to fall behind.

By 9:00, the Euro had flattened and the others had all slipped into negative territory.  So far it was the same correlation we have seen over the last several weeks.

That correlation was even more apparent as the opening bell rang on the NYSE.  Almost instantly the correlation began to break down.

By 10:00, the Euro was back in plus territory but the other assets refused to come along.  In fact, the commodities weakened further, hinting some possible lingering margin call pressures.

By 11:00, the divergence between the Euro and the other assets were glaring.  Several younger brokers (aren’t they all) came up to exclaim “what’s going on?”

I ventured my opinion that the lingering margin pressures in commodities (exacerbated by the carnage of recent days) were also intimidating stocks (when you can’t sell what you want to, you sell whatever you can).

The stock market was also bothered by bad housing news and the negative projections from Hewlett.

As the day wore on, the Euro inched even higher.  The selling pressure on commodities also eased.  That “time impact” strengthened the thesis about the influence of margin problems.

As the closing bell rang in New York, most stocks as well as oil and a few other commodities had drifted out of negative territory into a kind of unchanged mode.
It was, by recent standards, a rather odd session.  The S&P broke below its 50 day moving average (DMA) only to rally back when the Dow refused to break its 50 DMA.  The action raised more questions than it answered.