Courtesy of Chris Kimble.
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This 2-packs at the Valu-Line Geometric index and the FTSE-100 from London. Both hit highs in 2000 and then proceeded to fall around 50% each in the 2002-2003 window. Then they rallied back into the 2007 time frame, reaching the 2000 levels, where the both peaked again, followed by another 50% decline.
Since the 2009 lows, each has rallied back and each is now testing the 2000/2007 highs again.
To me, this is a good example of correlation these days on a global basis, reflecting that correlation is pretty darn high. The challenge with correlation these days is…say we own 100 stocks or numerous indices around the world, thinking we are diversified. If they all move together, do we have a diversified portfolio or basically one giant holding?
Humbly I believe we live in risky times, not due to the chart above though. The high degree of correlation raises risks for all of us.
Will it be different the third time and each breaks resistance? Sure could as the trend is up and each are above long-term moving averages. Should a breakout take place here by one of them, the other could follow along with other key indices that have been stuck at breakout levels since the first of this year!
Few investors are bullish at this time and if a breakout would happen, it would catch a good percentage of investors by surprise. This chart from Ryan Detrick reflects AAII bullish levels that were last hit at the 2003 & 2009 market lows.
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The stock/bond ratio also finds itself at key breakout/resistance test levels at the same time!
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Several markets from around the world have paused at key price levels, so far acting as resistance. How they handle this could tell us a ton about where markets will be at the end of this year!
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