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Markets just hit the warning signal I've been waiting for.

87% of stocks were moving in the same direction yesterday morning. 

That's not bullish or bearish – that's the setup for something much bigger.

I talked about this literally yesterday. 

The sign of big moves coming? High degrees of correlation. 

When everything moves together, the market's about to make a much more substantiated move.

Here it is happening live.

Here's what correlation actually tells you…

It's not about direction. It's about stretch.

Yesterday morning's advance-decline line hit 87 to 13. Full blown correlation. When you see numbers like that, the market is coiled tight. Physics takes over – things snap back.

I've had way too much caffeine this morning, but this is textbook. Yesterday I warned about correlation being the precursor to big moves. Today we're seeing it play out in real time.

The reversal is already starting.

Financials are leading the turn. I'm watching CITI puts print money as this correlation extreme breaks down. This isn't luck – this is what happens when you recognize the signal.

Most traders think correlation means "ride the trend harder." Wrong.

Correlation means "get ready for the snap."

The practical reality:

When 87 stocks move together, that's maximum stretch. The market doesn't stay stretched. It reverts. Hard.

Your advance-decline numbers are screaming this setup right now. Not bullish. Not bearish. Just ready to move big.

If you're trading this setup, don't go naked long or short.

Use spreads. 

Buy the financials reversal with put spreads, not straight puts. Risk a buck to make two when correlation breaks. Or if you're playing the snap-back, call spreads on the dip.

These correlation breaks move fast and violent. Spreads give you defined risk when the market's about to get stupid.

This is exactly what I was looking for.

The correlation warning fired yesterday. The extreme readings hit this morning. The reversal is starting now.

When everything moves as one, it's about to stop moving as one.

That's when the real moves happen.

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