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Does the market still correlate?

It is not a correlated market. The dollar is up and crude oil prices are down, which is normal, but the 30-year bond is trading lower. Financials should always correlate with the U.S. dollar, so when the dollar is lower, bonds should follow and vice versa. The S&P is trading lower, and crude oil is trading lower, which is not a correlation. Gold is trading lower, which is correlated with the uptrend in the US dollar. I tend to think that gold has an inverse relationship with the U.S. dollar, because when the U.S. dollar goes down, the value of gold goes up, and vice versa. Think of it like a see-saw: When one goes up, the other should go down. I point this out to make you aware that something is wrong if there is no correlated market. As a trader, you have to be aware of this and trade with your eyes open. In Asia, prices are trading mostly lower, with the exception of the Shanghai and Sensex exchanges, which are trading higher. All of Europe is currently trading higher.

Inhalt

  • Trend

  • My comment

Trend

Yesterday we gave the markets a downward bias as both the USD and bonds traded higher on Monday morning, which normally reflects a down day. The markets had other ideas as the Dow gained 151 points and the other indices also traded higher. Today we are not dealing with a correlated market and our bias is neutral. Could that change? Yes, of course. Remember that anything can happen in a volatile market.

My comment

Yesterday morning we got up and found that the markets are indeed correlated to the downside, so we have the markets trending down. There is economic news being released that is NOT stellar. The Empire State manufacturing index comes in at minus 31.3, yes, I said minus. The NAHB housing market index comes in at 49 instead of the expected 55. These are not good numbers, and yet the markets are rising. There can only be one explanation for this. Institutional investors, aka smart money, have decided to prop up the markets and buy. Do you think this is far-fetched? In the dark days of 2009, there was a phenomenon called the Plunge Protection Team, also known as PPT. Every day at a certain time of the day, the markets were going up because of nothing and no one, and the only entity that could do that was the smart money because they had billions to buy and sell. When they make trades, they don't just buy a handful of contracts, they buy and sell thousands of contracts at a time because they have the capital to do it. Do they do that all the time? I don't think so, because they haven't had to do that in recent years. The markets have behaved exactly the way they wanted to, but when we see things like yesterday, it does make you wonder.

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Does the market still correlate?

It is not a correlated market. The dollar is up and crude oil prices are down, which is normal, but the 30-year bond is trading lower. Financials should always correlate with the U.S. dollar, so when the dollar is lower, bonds should follow and vice versa. The S&P is trading lower, and crude oil is trading lower, which is not a correlation. Gold is trading lower, which is correlated with the uptrend in the US dollar. I tend to think that gold has an inverse relationship with the U.S. dollar, because when the U.S. dollar goes down, the value of gold goes up, and vice versa. Think of it like a see-saw: When one goes up, the other should go down. I point this out to make you aware that something is wrong if there is no correlated market. As a trader, you have to be aware of this and trade with your eyes open. In Asia, prices are trading mostly lower, with the exception of the Shanghai and Sensex exchanges, which are trading higher. All of Europe is currently trading higher.

inside-alternavest.article.writtenBy Massimo Di Santo.
Alternavest Partners GmbH Otto-Heilmann-Str. 17 82031 Gr├╝nwald

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