Why so serious?

While down in Florida, I did plenty of work, including some speaking engagements, blogs, and even did a fairly decent sized stock rotation within the ValueTrend Equity Platform. But I had plenty of time for R&R mixed in with that work (I almost never take a non-working vacation). As I often do while in Florida, I focus on a bike race – this time placing third in age class and fairly high up there on the overall standings for the Sebring 100 mile event.

I also watched a couple of movies.

Personally, I find most shows to be formulaic and predictable these days–I rarely watch anything beyond the ever flowing Star Wars franchise and a few other rare exceptions. So if I do bother watching something, I go back to the tried and tested stuff – movies with epic acting, amazing plotlines and writing. One of those repeat movies is Batman, The Dark Knight. If you have not seen this movie, you probably should. The now departed Heath Ledger arguably pulled off one of the greatest acting jobs of all time. My gosh, he played a brilliantly believable psychopath.

His famous line in the movie,”Why so serious” was so riveting when he delivered it, the worlds most prominent bike racer Peter Sagan tattooed it to his body with an image of his own face replacing Leger’s!

Another line Ledger delivered was when he was explaining to Batman (Christian Bale -another outstanding actor) the madness behind their relationship: “We’re what happens when an immovable object meets an unstoppable force!”. I love that line. And it reminded me of what the markets look like right now: Plenty of reasons to decline, plenty of reasons to rise.  Unmovable vs. unstoppable. What an analogy!

Today, I thought I’d examine the relationship between two forces that are more in sync with each other than Batman vs. Joker. Lets take a look at the Commodity Research Bureau CRB index vs. the TSX. The chart below shows us the TSX (red line) vs the CRB (black line). Below it is the correlation line. If the correlation line is above zero, it is more positive (the two are more in sync with each other) than when its below. A reading of “1” means perfect correlation – a rare event. A reading of “-1” means perfectly negative relationship. And “0” means non correlated (no relationship–random). You can see that the correlation is more often positive for the two (above 0). Meaning, we should watch the CRB to see what the TSX might eventually do.

Right now, the two are just starting to diverge in their correlation. The line is turning down. Note the trendlines I have drawn–you can see that the CRB has been declining lately while the TSX rose sharply after its December low. That’s why the correlation line is rounding down.

Perhaps this means that the TSX is positive for a very short period while the correlation starts to decouple for a while. But it is likely that the divergence in correlation wont last–history repeats itself.  This probably means that the TSX may give up some ground pretty soon, unless there is a really nice uptick on the CRB. And that is possible. Note the CRB line is near the bottom of its 3 year trading range.

Keep an eye on the CRB for clues as to where the TSX will go. If the CRB finds a bid and moves higher, that’s likely good for the TSX. If not – well, we can learn from that too. As Batman/Bruce Wayne’s father told him: “Why do we fall? So we can learn to pick ourselves up!”