|
PureBytes Links
Trading Reference Links
|
At 12:35 PM 5/27/00 -0500, the_omega_man@xxxxxxxxxxxx wrote:
Hi Omega Man:
>With the greatest respect for both Stewart's opinion and Robert's I believe
>that "intermarket" relationships are very difficult to demonstrate.
Keep in mind, my trading is mostly discretionary in nature (except for the
two portfolio models that I use for longer term bond investors). I agree
that the relationships are difficult to demonstrate (in fact most of the
correlation studies that I have seen over the years demonstrate low
correlation coefficients for most of the relationships). Keep in mind, I
don't take the time to do or work with these studies any longer.
>respectful suggestion is that one should, if attempting to use them, have
>some *totally mechanical* way to indicate when they are breaking down.
Again, for me, the relationships are part of the overall market analysis, I
would never base a trading or an investment decision solely on the basis of
an intermarket relationship. I do make it point not to be very heavily long
duration (bonds) when the CRB is rallying strongly, like it is now, but
that does not preclude me from taking advantage of chart formations as they
occur.
>I, too, know a number of respected traders/investors who use intermarket
>analysis. I believe that they are fooling themselves and are, in essence,
> no better off than the stock market player who watches the Lakers' results
>against Portland. They are watching a correlation which exists, but it
>is without causation.
I don't understand this... if they exist and our objective is to trade
profitably... do we really care about causation (not referring to the
Lakers or the Super Bowl or the length of skirts or any of that other BS).
For instance, I have seen study after study proving that the inflation rate
has little or no correlation to the CRB index. I believe this to be the
truth... and since there is no correlation to inflation there should be
little correlation to bond prices... but there (in my opinion) is a great
deal of correlation. As long as other traders are watching and trading the
correlations (imagined or not) there are plenty of reason for me to watch
them.
>
>Stewart - what has happened to the long term "relationships" of stocks and
>bonds over the past few years? How would you characterize the "intermarket
>relationship" of stocks to bonds from late '98 through the beginning of
>this year? Is that relationship the same as it had been prior to late '98?
> What happened to the "cause" of this "relationship"? Would stock-bond
>intermarket systems fare well over time?
Again, I think you have to recognize what is working when. Given that most
of the stocks in the S&P are significantly lower than they were a 1.5 years
ago (haven't most of the gains in the S&P have been due to the big cap
weights pulling the averages up?),Im not sure that the correlations haven't
held up.. but at the same time, since Im not that active in stocks and only
look at them as an exercise and to gain insight into the bonds so I may be
missing something basic.
I also think that many of the relationships must be put into context of
their overall trends and the broader environment. More specifically, the
focus of the trading community. If the trading community isn't focused on
inflation... small rallies in the CRB index, oil, gold etc. aren't going to
mean much if anything. BUT: In an environment where the focus is inflation
movements in these are going to take on more weight. Anyway, these are
just my observations.. my way of dealing with it all.
Hey, if nothing else, the intermarket work allows me to have a world view
without the interference of economists (if you laid all of the economists
in the world end to end... you still couldn't reach a conclusion), 21 year
old strategists from the brokerage firms and T.V. talking heads.... and
that has to be worth something!!
Later.... I am enjoying the dialog. Finally, something other than tick
counts and offshore tax betting to talk about. Three years ago this was a
great list. It would be nice to see it make a comeback.
Stewart.
Stewart Taylor
Taylor Fixed Income Outlook
Voice: 501-219-9774
Fax: 501-228-0963
E-Mail: staylor@xxxxxxx
Web Site: http://www.cei.net/~staylor/
|