IYT/WTIC, IYT/SPX See Negative Correlations (Transports vs. Oil and S&P 500)

Today is a big day because I'm introducing the 'correlation' indicator on a few charts. StockCharts.com allows you to chart out the correlation between two securities over any time period. First, I compared the two month relationship between IYT (Transportation ETF), SPY (S&P 500 ETF), DIA (Dow Industrial ETF), IWM (Small Cap ETF), QQQ (Nasdaq 100 ETF) and $WTIC (Crude Oil). At the beginning of February, IYT started to move inversely with WTIC (oil up, transports down), which made sense. During this time the other major market index ETFs either fell (IWM), drifted sideways (SPY, DIA), or rose steadily (QQQ). But then in the middle of the month, IYT completely decoupled from SPY, DIA, IWM and QQQ.

Now check out the chart showing IYT's negative correlation with $SPX (the S&P 500 Index) over a 20 day period since 2003, when IYT started trading. Look how the correlation crashed from 1.0 to -0.694 during February. That was a messy separation. And to top things off, the correlation made a new all time low on the chart (since 2003). The lowest it got was -0.615 in 2006. So, was this just a blip? Or was this a warning that oil could start affecting the economy soon.

IYT, WTIC, SPY, DIA, IWM, QQQ (via stockcharts.com)

IYT, IYT, $SPX Correlation (20 days)