Correlations closed the week at .68. While shorter term correlations have come down, longer term are virtually unchanged.
The main development this week is pink dots printing on the liquidity tracker. Again – how we measure liquidity is the daily change in price / dollar volume, across spx components. We are seeing 2nd percentile print for the past 50 days essentially meaning market participants were madly shuffling their positions over the past two trading days – ie tons of volume across instruments with little net price change.
The pink dots produce more false positives than the green dots yet there is a negative skew bias shown in this chart. The chart shows each return for days 1-20 from a <=2% print on the ratio there are 32 samples, not including that last two pink dots. The max upside return is 7.3% on day 15 and the min downside return is -10.9% on day ten. The average across all time-frames is -.2%.
As of now with the Powell talks, this appears to be a false positive. If this is a false positive we can expect and average gain of 2.57% out 20 days.
That’s all for now, have a great week.