Parallel Analysis of GBPJPY and S&P 500
Divergence between GBPJPY and the S&P 500 Continues into September
We can see on the TrendMap below that the Weekly and Daily trends for GBPJPY remain lower while the same two trends in the S&P’s — bottom line ES 09-09–are pointed higher. The TrendMap is a trading tool so it is sensitive. We might get a more understandable comparison by looking at the weekly charts of both trading instruments below.
I was talking with Jud Pyle and Carrie Long on onn.tv last week on the subject of the relationship between stock indices and the yen pairs, and Jud made what I thought to be a valid point. He said that every time you see divergence between trading instruments inevitably the talk turns to: “is it temporary” or is it “different this time?” He concluded that in hindsight it generally turns out to be a temporary. In other words it’s more likly a divergence prior to a reversion of the long-term relationship. Once (if) we do see a convergence of the previous overriding relationship we can probably expect trending price action.
Generally a divergence in major markets like this points to counter-trend trade, which means traders are best served by trading both sides of the market, which was certainly the case this week in both GBPJPY and EURJPY.
Jay Norris
www.trading-u.com
jnorris@brewerinvestmentgroup.com
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