Market Correlations: the Rule of the Day

Nothing makes the point that we no longer trade individual markets but rather “the financial market” better than the screen shot of eight 15-minute charts below of (left to right, top to bottom) Crude oil, 10-year U.S. interest-rates, Swiss Franc futures, Nasdaq futures, AUDUSD, EURUSD, Japanese Yen futures, and the S&P 500 futures.

The correlation between stock indices, crude oil, and AUDUSD in particular is scary tight. As traders we should never take a position in one market based on price action in another, but it sure paid today to pass on sell signals in EURUSD because U.S. stock indices (the S&P 500 and Nasdaq) were rallying sharply. Likewise the U.S. session lunch time rally in AUDUSD was a bit easier to see knowing the powerful correlation in place between that carry trade pair and other asset class markets. Noticeably absent from today’s party on the upside: gold, which is technically not an asset class market because it does not carry a dividend, or provide a yield.  Gold futures were down $53.30 per ounce today.

Jay Norris hosts Live Market Exercise where he spends 12 hours per week pointing out trade set-ups and signals  in live markets. He is the author of Mastering Trade Selection & Management, McGraw-Hill, 2011, and Mastering the Currency Market, McGraw-Hill, 2009.

Trading futures or Forex is a risky endeavor and not suitable for all investors!