In the past few weeks we have seen a lot of changes in investor sentiment. It all started at the end of September 2014. We had a lot of bad economic news coming. A falling labor participation rate, lower PMI readings, falling consumer sentiment, lower factory orders, declining oil demand, falling home prices, lower GDP growth revisions, declining bond yields, a drop in Dow transportation index, lower Baltic Dry Indices, lower Chinese power consumption growth and more recently falling retail sales.
As a result, the Dow Jones has posted losses for 2014. What’s most interesting is that volatility has now started spiking, which is never a good sign for stocks (see chart below from Google Finance). Volatility has seen similar spikes in 2008, 2010 and 2011 which all resulted in a correction in stocks.
On the other hand, gold has been very strong this year based on a higher fear index and higher volatility. Since October 2014 we have seen an additional anomaly where oil goes down and gold goes up. I see this as a buying opportunity in the gold and silver mining sector.
Correlation Economics (Backup) 