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Re: You got game?



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-- Frank wrote:

> This morning a good friend on the floor of the NYSE
> showed me a chart of the DOW overlayed against a
> chart of winning percentages of the LA Lakers when
> playing Portland.  The chart went from current back
> to 1977.  What it showed was an unusually strong
> correltion between market up days and a rising
> percentage of LA victories against Portland...



I use examples like this to explain to people why "intermarket technical analysis" is a farce.  The ultimate problem is that correlation neither indicates nor implies *causation*.

When people talk about "intermarket relationships" they often imply that movement in one market *causes* movement in another.  (Commonly referenced examples of this are currencies and bonds, or currencies and stocks, or stocks and bonds.)

The problem, of course, is that, while there may be a (temporary) correlation between certain markets, that is no reason to suppose that there is any sort of *causal* relationship between the two.  

And indeed, I will argue that there *cannot be* any causal relationships between free markets because the instant any such relationship were discovered it would have been fully exploited and disappeared.

This is why "intermarket technical analysis" is a farce.


Good trading,

OM