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Strategies & Market Trends : Contrarian Investing

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From: pcyhuang	10/15/2014 9:44:45 PM
	of 4080

The Correlation of International Capital Markets FOREIGN WEAKNESS FINALLY HITS THE U.S.... It took awhile for it to happen, but tumbling foreign markets have finally pulled the U.S. market into a downside correction. The three lines in Chart 1 tell the story. The blue line shows EAFE iShares (EFA) peaking at the start of July and tumbling to the lowest level in more than a year. The EFE has already undercut its February low, and has lost -13% from since July. Most of that selling has come from Europe. The red line shows Emerging Markets iShares (EEM) peaking at the start of September and losing -11% since then. It too is leading the U.S. lower. The black line shows the S&P 500 tumbling more than 2% today to the lowest level in eight months. It has lost -9% and is very close to official correction territory at -10%. This is just another example of the basic intermarket principle that global markets are highly correlated. Anyone who believed that the U.S. market could "decouple" from falling foreign markets are learning the hard way that global markets don't decouple. Global correlations become even tighter on the downside when volatility spikes higher, which it has done with a vengeance. Source: Stockcharts.com

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