Despite volatility taking off yesterday, today it stock fell and markets in general wavered about as we predicted; in sum, another one of those "nothing" day. We saw this as natural reaction to a consecutive 2 day drop in the markets, among other things.
The market outlook is that markets might have turned around a little bit, in fact, today´s close has left a rather bearish outlook for volatility and a rather bullish tone for equities, and in keeping up with the timing of the week, markets should rise tomorrow and depending on the strength of the rally, we should be in a better position to forecast Friday´s move 24 hours in advance. The E-mini S&P500 tomorrow might attempt an attact on the mid to upper 920 level, right now it stands at 908.
Today´s post is different from previous ones, we are going to try to shed some light on the factual relationship between the stock and the foreign exchange markets that you won´t find on any economic or finance textbooks. Even though this blog is mainly about volatility which is a highly reliable contrarian indicator which is not only suitable for trading, it is also used extensibly in the academic arena. One of the great advantages of volatility is the very reliable support and resitance levels, however, one big shortcoming is thatby the data is bound by the opening and closing hours of the exchange (CBOE), in other words, its not a "around the clock" time series. So we are a bit tied up with just equity and volatility indexes, we need a third alternative. There is a positive covariance between certain foreign exchange time series such as the Yen crossrates with the E-mini S&P500, note that both are as global and as a continuous time series as you can find. The graph below is pretty self-explanatory, it shows an overlap of the E-mini September 09 contract with the EURJPY cross rate in 120 minute bars which explains among other things explains the current drop of the stock markets. By the way there does not exist such a positive and fit covariance between the stock indexes and any other time series, thus any investor or academic that wishes to study the stock market given the covariance, he or she has 3 alternatives: stock indexes, volatility contrarian indexes and finally the currency market, which we have coined as the "Golden Triangle".
The market outlook is that markets might have turned around a little bit, in fact, today´s close has left a rather bearish outlook for volatility and a rather bullish tone for equities, and in keeping up with the timing of the week, markets should rise tomorrow and depending on the strength of the rally, we should be in a better position to forecast Friday´s move 24 hours in advance. The E-mini S&P500 tomorrow might attempt an attact on the mid to upper 920 level, right now it stands at 908.
Today´s post is different from previous ones, we are going to try to shed some light on the factual relationship between the stock and the foreign exchange markets that you won´t find on any economic or finance textbooks. Even though this blog is mainly about volatility which is a highly reliable contrarian indicator which is not only suitable for trading, it is also used extensibly in the academic arena. One of the great advantages of volatility is the very reliable support and resitance levels, however, one big shortcoming is thatby the data is bound by the opening and closing hours of the exchange (CBOE), in other words, its not a "around the clock" time series. So we are a bit tied up with just equity and volatility indexes, we need a third alternative. There is a positive covariance between certain foreign exchange time series such as the Yen crossrates with the E-mini S&P500, note that both are as global and as a continuous time series as you can find. The graph below is pretty self-explanatory, it shows an overlap of the E-mini September 09 contract with the EURJPY cross rate in 120 minute bars which explains among other things explains the current drop of the stock markets. By the way there does not exist such a positive and fit covariance between the stock indexes and any other time series, thus any investor or academic that wishes to study the stock market given the covariance, he or she has 3 alternatives: stock indexes, volatility contrarian indexes and finally the currency market, which we have coined as the "Golden Triangle".
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