|
PureBytes Links
Trading Reference Links
|
The stock vs. bond correlation is still valid......but you must use a
derived conditional variable to compare the two to obtain a decent
R-squared.
bondvar = -1 * (bond_rate_chg - bond_rate_maxchg) * factor *
bond_rate_chg...etc, etc.
(an example only)
stockvar = (price - price[1])/price[1]*100;
When bond rates go about a certain "max" as indicated by the market, THEN
bond prices negatively correlate with the stock market. Otherwise, mildly
rise bond rates at "low" levels produce positive correlations. Oh, and there
is a time-lag factor in there as well ! The above is an example to show that
many correlations are not simple. You just can't compare A to B....usually
there are time-offsets to consider as well as more conditions to factor-into
the variable.
Check it out....a big study was done on this. This also makes sense from an
economic standpoint.
Where's the "max" today ? Dunno...could be 7 or 8 % on the long bond.
Implications: if rates stabilize in the next 6 weeks and we don't reach the
"max", then a big, big rally in stocks is coming.
> -----Original Message-----
> From: the_omega_man@xxxxxxxxxxxx [mailto:the_omega_man@xxxxxxxxxxxx]
> Sent: Saturday, May 27, 2000 12:35 PM
> To: Stewart Taylor
> Cc: Omega List
> Subject: Re: You got game?
>
>
>
> With the greatest respect for both Stewart's opinion and Robert's
> I believe
> that "intermarket" relationships are very difficult to demonstrate. My
> respectful suggestion is that one should, if attempting to use them, have
> some *totally mechanical* way to indicate when they are breaking down.
> (Perhaps money management takes care of this.)
>
> 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.
>
> 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?
>
>
> Good trading,
>
> OM
>
>
> "We do not see things as they are, we see things as we are."
>
>
>
>
>
> At Sat, 27 May 2000 10:01:55 -0500, Stewart Taylor
> <staylor@xxxxxxx> wrote:
>
> >
> >
> >One more thought, I think its also important to realize and understand
> >what
> >the market is focusing on. For years I kept an intraday matrix with
> >Bonds,
> >Dollar, CRB, S&P, Crude, DM, Gold and Beans. I would jot down a reading
> >every 20 or 30 minutes or anytime the bonds made a big intraday move
> >and
> >then scroll through the charts. There were certainly short periods of
> >time
> >when the market concentrated intently upon another market (about 90%
> >of my
> >trading is in the bond market). Those times when you could figure out
> >what
> >the market was focusing on, you had a significant advantage (usually
> >in the
> >form of the courage to act). But, it was a lot of work and I have gotten
> >away from wanting to work quite that hard.
> >
> >I can remember times (back in the old days when we were all consumed
> >with
> >inflation fear) that you could put up an intraday chart of wheat or
> >beans
> >and get great insights into the short term movement of the bonds (higher
> >wheat or beans = higher CRB = Lower bonds). Understand, that most traders
> >are like anyone else, they have a compulsion to understand why things
> >happen (plus, for the desk and prop guys at large firms, the first thing
> >the boss asks after he comes to check your position is usually ... Why?).
> >Anyway, if they afraid of inflation, they will focus on the CRB because
> >it
> >is on their screen, it is actively quoted and they have seen dozens
> >of
> >other traders watching it. You get enough traders watching the same
> >thing,
> >you get insight and possibly an edge.
> >
> >
> >
> >Hope all is well,
> >
> >Stewart.
> >
> >
> >
> >At 09:34 AM 5/27/00 -0500, robert.cummings@xxxxxxxxxxxxxxxx wrote:
> >>Were always looking for that elusive lead indicator. The platform on
> >which
> >>holy grails can be derived. I agree you can't trade this inter market
> >>stuff. I agree with Stewart certain considerations should be taken
> >under
> >>advisement. Example would be grain and meat prices. People monitor
> >and
> >>trade these ratios. I understand what OM is saying here and I agree
> >with
> >>him. To bad though if one market would lead another by about 5 ,10
> >or 30
> >>minutes consistently we could all be rich.
> >>
> >>Robert
> >>
> >>
> >>
> >>
> >>At 05:37 AM 5/27/00 -0400, editorial@xxxxxxxxxxxxx wrote:
> >>>This is why "intermarket technical analysis" is a farce.
> >>>
> >>>
> >>>Good trading,
> >>>
> >>>OM
> >>
> >>
> >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/
> >
>
>
|