For me, this is what we want to watch.
Are you wondering whether this correction in the stock market can turn into something much more severe?
I certainly am.
As thrilled as we are to see some of these Tech and Growth stocks get hammered, the question is whether this aggressive selling will spill into other more value-oriented areas.
There are 3 main charts that we have on our radar.
The first one is in credit. If we’re entering into a new bear market, or an aggressive period of high volatility, you are likely to see that stress in the bond market. If Treasuries begin to outperform High yield, it’s evidence of that stress.
The next one is in High Beta vs Low Volatility stocks. This ratio tends to move very closely with the averages. If you start to see a bid in Low Volatility stocks relative to High Beta, then this correction is likely to be more severe.
And finally the Consumer Discretionary vs Staples. Similar to the High Beta / Low Vol ratio, this tends to signal rotation into more defensive areas of the market.
Here’s what that looks like: [Read more…]