Monday, November 14, 2011

Market Trading Substantially Above Correlations

You've heard it here before, the typical correlation between the EUR/USD FX pair and the DOW (because they are so closely correlated) has run on average at 1 pip in the FX pair (up or down) roughly equals 2 Dow points (up or down).

Today the market is trading substantially above this correlation, it wouldn't be the first time recently.

 The correlation between the EUR/USD Friday Close and today's FX low would imply a low in the Dow near 11,775 at the red trendline, you can see the DOW is trading 267 points above the correlation low.

 As far as current (as of this capture) the Dow should currently be around 11,829, it's trading about 248 points above the correlation.

 The first week or so of November the same situation existed as the DOW-30 traded substantially higher then the FX correlation, that time it didn't end too well with a 60 minute drop of 288 points (-2.37%) which was on the open of November 9th. Does that imply the same will happen now?

All I can say for sure is that the market is propped up right now substantially vs the FX correlation which is a sign worth taking note of.


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