Stocks & Commodities V. 31:8 (43): Futures For You by Carley Garner
Product Description
Futures For You by Carley Garner
INTERMARKET RELATIONSHIPS FOR FUTURES TRADERS
An intermarket relationship is simply the manner in which particular markets behave in relation to each other; more specifically, it is the correlation between two otherwise unrelated markets. Among the most monitored relationships are those between stocks and bonds, and the US dollar and commodity prices.
Most people assume that stocks and bonds will always be negatively correlated (that is, moving in the opposite direction). But this is a simplistic view that suggests investors have only two choices, stocks and bonds; money moved out of one typically coincides with money moved into the other. There are, however, times when both assets can move higher or lower together. For example, in the early stages of the Federal Reserve’s quantitative easing campaign, the never-ending printing of US dollars and the subsequent need for liquidity to find a home caused nearly all asset prices to move higher in lockstep. During this time, the equity market and Treasury securities were both able to climb to multiyear highs. And again more recently, statistics on the past 180 trading days, as of early June, suggest that the S&P 500 futures contract and the 30-year bond futures contract were negatively correlated a mere 40% of the time. This leaves plenty of time (60%) for the markets to be trading outside of what is the conventional expectation.
An interesting intermarket relationship that is surprisingly reliable but that has managed to go under the radar is the negative correlation between the S&P 500 and the Japanese yen. According to stats spanning the previous 180 trading sessions (as of early June), these two markets traded in opposite directions approximately 91% of the time! Based on this information, anyone who was looking for a crack in what was then the magnificent stock rally may have looked to any strength in the yen versus the dollar (a higher yen futures contract, or a lower USD/YEN in forex) as a hint toward a reversal.
INTERMARKET RELATIONSHIPS FOR FUTURES TRADERS
An intermarket relationship is simply the manner in which particular markets behave in relation to each other; more specifically, it is the correlation between two otherwise unrelated markets. Among the most monitored relationships are those between stocks and bonds, and the US dollar and commodity prices.
Most people assume that stocks and bonds will always be negatively correlated (that is, moving in the opposite direction). But this is a simplistic view that suggests investors have only two choices, stocks and bonds; money moved out of one typically coincides with money moved into the other. There are, however, times when both assets can move higher or lower together. For example, in the early stages of the Federal Reserve’s quantitative easing campaign, the never-ending printing of US dollars and the subsequent need for liquidity to find a home caused nearly all asset prices to move higher in lockstep. During this time, the equity market and Treasury securities were both able to climb to multiyear highs. And again more recently, statistics on the past 180 trading days, as of early June, suggest that the S&P 500 futures contract and the 30-year bond futures contract were negatively correlated a mere 40% of the time. This leaves plenty of time (60%) for the markets to be trading outside of what is the conventional expectation.
An interesting intermarket relationship that is surprisingly reliable but that has managed to go under the radar is the negative correlation between the S&P 500 and the Japanese yen. According to stats spanning the previous 180 trading sessions (as of early June), these two markets traded in opposite directions approximately 91% of the time! Based on this information, anyone who was looking for a crack in what was then the magnificent stock rally may have looked to any strength in the yen versus the dollar (a higher yen futures contract, or a lower USD/YEN in forex) as a hint toward a reversal.
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