Comments on: Tag – You’re It

By: Gold@3440

Gold@3440 — Mon, 09 Nov 2009 15:21:14 +0000

Aronny – it’ a rolling 365 day correlation (r) between the EUR and the S&P. I can’t be more specific than that can I?

FYI – I have another (different) observation to make:

the 13 week change in the Bradley v the 13 week % change in the Dow.

There is a very tight positive correlation between the changes in these two if you lag the Dow series by 11 weeks against the Bradley. I am investigating why there is the need currently for an 11 week lag but the very strong correlation has been evident since March 2007 using the weekly data.

If this correlation persists, it argues we should expect a low (in the 13 week change of the Dow) in 3-4 weeks and again in 7-8 weeks. These would be meaningful lows (i.e we should expect a loss of -10% to -20% over the 13 week period working back from those lows).

I’ve written this badly and it’s probably difficult to follow but in short it would imply the Dow trading at around between 8700 and 7700 by year end – assuming we got a near perfect corretation and magnitude of move) – a wide of error margin but clearly well below today’s levels.

By: curt504

curt504 — Mon, 09 Nov 2009 00:47:19 +0000

Any thoughts or charts for a gold top here?

By: Aronny

Aronny — Mon, 09 Nov 2009 00:03:50 +0000

Gold@3440, how do you measure the correlation? I.E. what “correlation is 86%” exactly mean?

By: Gold@3440

Gold@3440 — Sat, 07 Nov 2009 09:23:54 +0000

arowanack – of course they can, especially if the collpasing USD is the reason for the equity collapse.

By: Chet

Chet — Sat, 07 Nov 2009 04:28:05 +0000

Wow, the powers that be via their plunge protection team must have spent an incredible amount of money today (11/6) to prop up this market especially after the really negative employment report and with the negative astrology due to begin Sunday. They did the same thing in September and it seemed they were successful. Their meddling will only make things worse in the long run. They will drive away short sellers who are vitally necessary to the operation of the stock market. We could easily have one or two days next week where the market drops like a simonized safe.

By: arowanack

arowanack — Sat, 07 Nov 2009 04:04:09 +0000

Hi Gold, interesting that one … and I was wondering if stocks can flounder, together with a WEAKER USD..

By: Gold@3440

Gold@3440 — Fri, 06 Nov 2009 18:01:14 +0000

I’ll only say this about the EUR v S&P method.
The current correlation is 86% using rolling 365 day data. After every period of extremely high correlation, this relationship becomes unstable and breaks down (as do all others). It’s the nature of markets that as soon as everyone spots the relationship it no longer works – kind of like trying to observe the quantum world where the act of observing changes the outcome.

In the 2 previous occasions where the correlation reached 86% or higher, we had a subsequent brekadown to between -60% and -75%. In other words, the two went in opposite directions.

This relationship can break down very quickly. I think it’s OK for now (although I notice it has started to dip from a peak of 92% in July) to assume the relationship will hold but we certainly shouldn’t take it for granted.