This correlation breakdown has me on high alert

Don Kaufman here. 

While everyone's focused on summer doldrums and range-bound trading, I found something that has me on high alert.

I spent this week digging into a correlation breakdown between equal-weight S&P and market-cap weighted S&P that can only be described as critical. 

And here's what's got my attention - this type of divergence has only happened 4 other times in the last three years.

Every single time, it preceded significant volatility.

Now, let me be clear about something. This isn't a timing mechanism. I'm not saying volatility hits tomorrow. 

But what I am saying is we're officially on the clock.

The math here is pretty straightforward. 

When you see this kind of correlation breakdown - and I mean the really clean, substantial divergences - there's only two ways it resolves. Either the lower product rips higher, or the upper product comes down hard.

Given how substantial the market cap weighting has become with your Microsofts, your Nvidia's, your Apples, I'm betting on the second scenario.

Here's the really crazy thing though. Nobody's positioning for this. I would have expected people to start hedging, maybe picking up some VIX protection. But nothing. 

The crowd is completely asleep at the wheel.

And that brings me to the most important point of this entire analysis...

Watch the full breakdown here - including the exact correlation charts and why this setup reminds me of every major volatility spike we've seen

The technical details matter here, and frankly, they're too important to summarize in a quick note. 

You need to see the actual correlation study and understand exactly what we're looking at.

Because if I'm right about this convergence pattern, the next few weeks are going to get very interesting.

To your success,

Don Kaufman

P.S. Yeah…I might be ranting a little but don’t think I’m not taking shots in the market. In fact, my earnings strategy delivered three overnight triple-digit returns this week including AXP and TSM. If you haven’t seen this, check it out now.