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Hi Ron. I have spent a good deal of time over the years playing games
with correlations between FX, stocks and bonds. I will tell you that
they vary greatly over time. I assume that you are also correlating
percentage changes rather than levels since doing correlations on levels
only introduces autocorrelation.
It is interesting though that you find a weaker euro as a leading
indicator of a weaker stock market. There are many people that believe
this to be exactly the opposite (I wrote euro because the French franc
and DEM are no longer independently traded and are at a fixed rate to
the euro and have been since January 1, 1999.)
My forecasts have been though for the euro to strengthen soon from near
the 0.89/0.86 range and for the yen to collapse along with the USD. I
still see the Japanese economy as being in deep trouble and the Japanese
stock market is already suffering from a severe tech slump that is not
even rallying with the NASDAQ. Although we might get a brief yen rally,
that will get some folks believing in the weak dollar, strong yen, weak
US stock market story, I believe that will be a head fake as Japan
tumbles into an ever deeper recession and the yen collapse to ¥150/¥170
in the next two or so years. At the same time, Dow goes to 8500, S&P to
1050 and NASDAQ, at best to 2550, possibly to 1900.
Steve Poser
---
Steven W. Poser, President
Poser Global Market Strategies Inc.
url: http://www.poserglobal.com
email: swp@xxxxxxxxxxxxxxx
Tel: 201-995-0845
Fax: 201-995-0846
----- Original Message -----
From: Ronald McEwan <rmac@xxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Saturday, April 29, 2000 2:51 PM
Subject: [RT] Gen:Fx_Usd_Spx
> The attached zip file contains 4 gif images. I did this to save space.
If
> you do not prefer a zipped file I can email these as separate images
if
> you email me and request it.
> ----------------------------------------------------------------------
---
> ----------------------------------------------
>
> I have been examining the interrelations of the world markets via the
Fx
> markets (the Fx_Usd in particular). One of the studies I have done is
to
> examine the cross correlations of the Dem_Usd, Frf_Usd, Jpy_Usd &
Gpb_Usd
> against the S&P 500 Index. I have examined these relations back to
1997
> (all the data I had at the time) and found that the cross correlations
of
> the Fx markets provide very useful information in predicting the
> direction of the S&P 500. I was particularly curious about looking at
> these patterns in light of the recent news about some major hedge
funds
> closing down or curtailing their equity participation. As for my
> analysis, it appears that the Dem_Usd and the Frf_Usd are displaying
the
> highest correlation coefficient (.739) with a lead time of 38 days
> (trading days). The outlook for the S&P does not appear particularly
> attractive on the up side. (could this be why some of the hedge fund
are
> scaling back?). While some of my other indicators are showing a strong
> possibility of a rally next week( a volatility reflex, sort of like a
> reverse after shock), I would look at this as an opportunity to go
short
> (or at least increase cash). I should also add that I have showed some
of
> this to industry "Professionals" and was informed the "results are not
> conclusive". This is my outlook and I welcome any comments and
opinions,
> "Professional" or not , as to this analysis and its method.
>
> Ron McEwan
>
>
>
>
>
>
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