The under-discussed market indicator

There is a market index that I don’t hear a whole lot of people talking about.

When gauging the health of the market, you always hear about people talking about $SPY, $QQQ, and VIX..

Those are hugely important, and I largely use those as well. When we are above the moving averages of those major indexes, that is the sign of health in the market, and usually a green light to ramp up exposure and allocate cash to new opportunities.

However, these past few weeks have been brutal, specifically for momentum stocks. The AI trade has faced a harsh pullback. $SMH is down a lot. It’s been the harshest sell off of momentum stocks in recent history.

But…then you go look at the regular market indicators…and $SPY is only down about -2% from all time highs.

This is a sign of rotation in the market, but also a sign that we need to dig deeper into what kind of environment we are really in.

The fear and greed index is a good one quick check of sentiment…

But the index I am talking about is Cboe 1-Month Implied Correlation Index ($COR1M)

Here’s what that is according to google…

COR1M is the ticker symbol for the Cboe 1-Month Implied Correlation Index, a financial benchmark that measures how closely the individual component stocks of the S&P 500 are expected to move relative to the overall index over a one-month period.

How COR1M Works

Definition: It compares the implied volatility of S&P 500 index options (SPX) against the weighted average implied volatility of options on its individual member stocks.

High Values: Indicate that stocks are expected to move together in unison, typically spiking during market panics, crashes, or severe downdrafts.

Low Values: Indicate that individual stocks are moving independently based on their own fundamentals or sector trends (such as concentrated tech rallies).

Market Use

Trading Strategies: Used by options traders to gauge market sentiment and execute dispersion trades (betting on the difference between index volatility and single-stock volatility).

Hedging Signal: Low readings often imply that broad market index options or hedges are relatively cheap compared to individual stock options.

In other words…the LOWER the $COR1M goes, the more of a stock pickers market we are in.

No matter how good of a stock picker you are, its best to make money when this index is high, and not low.

When the value is high and markets are selling off, usually that means everything is going down together (because it measures correlation).

Usually healthy markets tend to have COR1M reading above 8 and below 15.

The last few weeks the reading has been around 5.

We need a higher $COR1M value and a push on the indexes to reclaim their moving averages before the market environment is repaired from a technical standpoint.

Note: This article does not provide investment advice. The stocks mentioned should not be taken as recommendations. Your investments are solely your decisions.