What is a bear market?

oil fut jan 11 2016can $ fut jan 11 2016coffee fut jan 11 2016lumber fut jan 11 2016

Light crude                  Canadian dollar           Coffee                         Lumber

milk fut jan 11 2016Euro fut jan 11 2016iron ore fut jan 11 2016wheat fut jan 11 2016

Milk                             Euro                              Iron Ore                    Wheat

The above futures are more or less randomly chosen. I myself did not know that milk also traded except here in Canada with supply management there is little point. The time frames of these charts are roughly speaking equal. The units on the y-axis are chosen by the CME charting system in such a way that the graph fits the entire chart window, therefore be careful not to draw the conclusion that they are all almost identical just because they all start at the top left hand corner and drop into the bottom right hand corner.

The other day our governor Mr. Poloz observed that the chart of crude and the Canadian dollar looked like a railway track, and since he had no idea where oil was going he seemed to say that he also had no idea where the Can. dollar was going. A very astute observation but it should not be forgotten that oil is down 70% and the C$$ 25% over this period. As iron ore is also down about 70% the correlation between it and oil is much better and is closer to 1, which mathematically expresses perfect correlation. And there is the definition of a bear market, it is when the correlation of different asset classes start to rise and approach 1. This, by the way, is why diversification always stops working when you most need it.

All these commodities etc. combined can be viewed by looking at an index, a single index. See the next.