The Contrary Investing Report
Investing and Trading News, with a Contrarian, Sarcastic Twist!


CBOE Implied Correlation Index Hits New Record

by Brett on August 25, 2010

The CBOE Implied Correlation index has hit a new record – and this is usually bearish.  From ZeroHedge:

The CBOE Implied Correlation index has just hit another historic plateau, touching on 85 earlier in the day, which means that all those who believe relative value can still be found are about to be carted off. Aside from the fact that the current level of JCJ would be the highest closing level in history, the intraday high of 84.50 is a very troubling indicator, which once again confirms that stocks continue to trade not on fundamentals, and probably not on technicals, but on ever increasing amount of leverage applied to some indication of beta. Essentially, market participants are likely levered to the gills like never before and betting it all on another daily Hail Mary. Another way of looking at the reading, as we have pointed out previously, is that stock dispersion: the most critical indicator of a healthy market, is at 15%!

I’m with Tyler here – this is trouble.  We’ve been repeating over and over that traditional diversification is unlikely to help out much when the markets roll over again.  Why own a portfolio of stocks that drop 50%, when a single one would do the same trick?

For what it’s worth, this surpasses a 23-year record of 83% correlation that was set just before – wait for it – the 1987 crash.

If only guys like Tony Robbins weren’t screaming for the public to get out of stocks, I’d say we’d be all setup for a crash of epic proportions!

(FWIW – I’m short the S&P anyway, and the Euro too).


Our Partners





Further Reading:

Post Footer automatically generated by Add Post Footer Plugin for wordpress.

Previous post:

Next post: