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Hi Charles,
thanks for your interesting contribution. It seems to describe a different phenomenon, though. I don't see how it can explain the fact that stocks and energies are positively correlated. Care to elaborate?
Best regards,
Michael Suesserott
Charles Meyer wrote:
> Michael-
>
> How about this explanation?
> ======================
>
> 5/15/05 - From Charles Meyer
>
> Take a look at BMNIX in FastTrack. That fund invests 50% of it's
> portfolio in long positions and 50% of it's portfolio in short positions
> which translates into pretty much of a market neutral/non-directional
> posture.
>
>
> The idea is that when the market is strong the stocks in which they are
> 50% long will rise MORE than the purported weak stocks in which they are
> 50% short. And when the market is weak; they believe the stocks in
> which they are 50% short will decline more than the purported strong
> stocks in which they are 50% long.
>
> However; look at their performance during April and May. As can be seen
> the fund has been declining in price in spite of the fact 50% of the
> dollars are in short positions? How can this be so? Quite simply; it's
> the nature of a bear market. While there may be individual stocks which
> appear attractive to hold and may even be demonstrating strength
> relative to the overall list; the bulls are anxious to protect profits
> when those stocks start to fall with the market. This leads to a domino
> effect where mutual funds--faced with liquidations--are also forced to
> sell stocks: even the attractive ones. You will note that BMNIX tends
> to do well when the general market is fairing poorly. But; there comes
> a point to where the stocks in which they are long decline more than do
> the stocks in which they are short. I'm not sure this is a good or even
> an adequate explanation of why this occurs; but the end result is that
> even perfect hedging market neutral will lose money in a bear market.
> For related reasons; of course all those hedge funds will have an
> adverse effect on stocks in a game which can be likened to musical
> chairs where too much money is attempting to exploit similar strategies
> and system edges.
>
> Just my 2 cents.
>
> =================
>
> ----- Original Message -----
>
> *From:* Michael S. <mailto:MikeSuesserott@xxxxxxxxxxx>
> *To:* realtraders@xxxxxxxxxxxxxxx <mailto:realtraders@xxxxxxxxxxxxxxx>
> *Sent:* Tuesday, May 31, 2005 4:34 PM
> *Subject:* Re: [RT] Parallel moves
>
> I am aware of the phenomenon. What I am hoping for is some
> fundamental insight as to *why* the two markets behave that way.
> Being an option trader, measuring correlations is part of my
> routine. And the said correlation has been unusually strong lately,
> in several time frames.
>
> Although I never trade on fundamentals alone, I would still be
> interested in the economical basis for this occurrence, and would be
> grateful if someone could come up with a fundamentally-oriented
> explanation.
>
> Best regards,
> Michael Suesserott
>
>
> Ron Cernokus wrote:
> > These two markets often turn together. Look at March, April and may.
> >
> >
> > ----- Original Message -----
> > *From:* Michael S. <mailto:MikeSuesserott@xxxxxxxxxxx>
> > *To:* realtraders@xxxxxxxxxxxxxxx
> <mailto:realtraders@xxxxxxxxxxxxxxx>
> <mailto:realtraders@xxxxxxxxxxxxxxx>
> > *Sent:* Tuesday, May 31, 2005 4:13 PM
> > *Subject:* [RT] Parallel moves
> >
> > For some time now, SPY and XLE (Energy Select Spyder)have been
> > moving in tandem, even on 5min. charts. Any ideas as to the
> > fundamental reason behind this phenomenon? Shouldn't these
> markets
> > be inversely correlated, if at all? I.e., shouldn't stocks go
> down
> > when energy becomes more expensive?
> >
> > Best regards,
> > Michael suesserott
> >
>
>
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