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!

About Jay Norris

Jay Norris is Director of Education at Trading University, has over 30 years of trading experience, and is the best selling author of "Mastering The Currency Market", McGraw-Hill, 2009, and "Mastering Trade Selection and Management", McGraw-Hill, 2011. He has also been published multiple times in Technical Analysis of Stocks & Commodities magazine.

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