One of the themes outlined in the weekend Options Report was how the stock market has become monolithic. It’s comprised of thousands of individual companies, yes, but they’ve all blended into one big blob. And when that happens, good luck differentiating your performance with picking winners and losers.

As you likely have realized – everyone is a winner or loser on the same day. And we’re in an environment of extremes. One day, everyone hits the jackpot. The next day, everyone is bankrupt. Such is our new bear market reality.

This is one of the most significant differences between bull and bear markets. In bull times, the stock market becomes a market of stocks. Company fundamentals matter, and you see a wide disparity in performance. The best stocks rocket to the moon while the worst go to the graveyard. Investments in finding the best stocks and ferreting out relative strength pay dividends.

In bear markets, stocks move as one. The fancy way of saying that is, “correlations run to one.” Allow me to elaborate.

Correlations

“Correlation” is shorthand for the “correlation coefficient.” This is how Investopedia defines it:

“The correlation coefficient is a statistical measure of the strength of the relationship between the relative movements of two variables. The values range between -1.0 and 1.0. A calculated number greater than 1.0 or less than -1.0 means that there was an error in the correlation measurement. A correlation of -1.0 shows a perfect negative correlation, while a correlation of 1.0 shows a perfect positive correlation. A correlation of 0.0 shows no linear relationship between the movement of the two variables. “

Ah, Clarity.

In ThinkorSwim, you can add Correlation as an indicator. It defaults to a 10-day reading and uses the S&P 500 as the benchmark. For a good comparison, let’s use Beyond Meat. Since its May 2019 inception, it was a volatile beast, moving to the beat of its own drum. Its relationship to the broader market was all over the map. This can be confirmed by the correlation indicator whipping from positive to negative territory.

BYND was truly an individual, moving too and fro based on traders’ outlook on the company’s prospects. But look at the correlation indicator recently. Notice how since mid-February (when the crash began), the reading has ramped toward 1. Beyond Meat is no longer an individual. It’s been sucked into the stock blob that rises and falls together.

This is why stock picking doesn’t matter much right now. It’s why I prefer to use indexes and ETFs to make directional bets. It’s simpler, and they have the best liquidity. When the panic subsides, stock picking will return to its former glory. But that could be weeks to months from now.

One final note: you will find exceptions to this. Some stocks are holding firm during the selling while others are falling further than the market. But they are few and far between.