A small move in one of these sectors is often the first clue of an impending large directional move, which will have an impact on the correlating sectors.
Most days in futures class we review direction indicators for the major sectors of the economy. These sectors often correlate either directly or indirectly. For example, a rise in interest rates may affect currencies, which might have an impact on stocks or precious metals and energy(NYSEARCA:XLE). A small move in one of these sectors is often the first clue of an impending large directional move, which will have an impact on the correlating sectors.
The main sectors and the most liquid futures and ETF symbols…
When stocks began the historical correction down in October, petroleum products turned over and fell into a steep decline as well. Around that same time treasuries, precious metals and yen began to rally. Markets frequently move like dominoes. If one correlating sector begins to move, the others will fall or rise around the same time. So, by watching Japanese yen we may get an early clue on how to trade the dollar(NYSEARCA:UUP), gold(NYSEARCA:GLD) or stock indexes before those dominoes begin to fall (react).
We are about to enter the first earnings season of the new year with extreme volatility. When moves both up and down are so fast and furious it is imperative to have a quote board or symbol list that includes the major sectors as in the table above. Some of the best and well-timed trades come from paying attention to a correlating market. I believe interest rates are the economic engine and the other sectors follow. However, on occasion a currency or stock index will be the catalyst for the start of a trend. To recognize subtle changes, I prefer to use 30-minute bar charts and check each sector a few times a day. Pay special attention to the time of day the high and low prices trade. Early identification of a reversal of trend or the acceleration of one will improve your timing for entering and exiting trades. Great timing reduces risk and improves profit potential.