Jan

22

It is interesting to compare the open, high, low, and close of Nikkei and the S&P. Though separated by many miles, hours, differences in culture, economy, and currencies, they move remarkably in harmony.

Market   Date            Open   Hi      Low      Close                                       

Nikkei    1/15           8040  8155    7990    8025                                        

S&P       1/20             839   840     797      806  

The respective closing prices were the lowest in some 30 trading days for both, with the 10 year low in S&P occurring on 11/20 at 746 and the Nikkei setting a lo of 7700 on 11/20. During the month of December and January, Nikkei hit a closing high of 8760 never going above the 9000 level while the S&P had 4 days in December and 5 days in January (the first 5) above 900. The correlation between the daily changes in the S&P and the change in the dollar versus yen, over the last year has been about 70%, with hardly a contemporaneous day with the dollar down big and the S&P up, or the dollar up big with the S&P down, so one who is averse to being beleaguered or stopped out or political announcemented out in one market having the luxury of trading the other. It is interesting to see the frustration aggression hypothesis, or the dissonance consonance theory, or the round number never holds theory, or the play of running stops worked out, or what have you, manifest itself in the climactic but ephemeral breaks of the big 8 rounds.


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6 Comments so far

  1. Anton Johnson on January 21, 2009 3:45 pm

    During the last 4 mo. previously consistent negative correlation relationships between asset classes have become tenuous; evoking the adage “the only thing that goes up in a bear market is correlation”. Not surprisingly, one longstanding correlation relationship that has been reinforced is the S&P ETF (SPY) and (VIX). See CHART. The 52-day daily correlation is negative 86.4 % and the 10- day is negative 92.5%. The current negative correlation is the strongest I’ve calculated.
    Asset allocators that use short positions can easily remedy the high intra-portfolio correlation problem; the others are forced into US bonds and, to a more limited extent, gold and the US dollar. Desperate asset allocators are major contributors to the run-up in US treasuries.
    Recently though, especially during the prior 20 days, there has been evidence of normalization of correlation relationships, especially among most global bonds and global equities. I posit that this portends great opportunity to those who implement viable asset allocation strategies.

  2. Jonathan on January 21, 2009 5:57 pm

    Bearing in mind this is my first post…

    Based just on the OHLC provided I expected to see similarities in the daily price behavior when comparing the two markets. However, based only on this information I found nothing to make me think these two days have anything in common.

    To quanitify their repective daily price activity, I computed the simple price return from buying on the open and selling on the close and the percentage of the daily high/low price range encompassed by the open/close price range.

    Return % of Range
    C / O - 1 (O - C) / (H - L)
    Nikkei -0.19% 9.09%
    S&P -3.93% 76.74%

    Based on this information, I fail to see any similiarties in the market activity for these days based on the OHLC data. Additionally, one might infer from the OHLC that the S&P traded lower (HOW it traded lower of course cannot be infered) during the day based on the open’s proximity to the high and the proximity of the close to the low. One cannot make any inferences about the price action on the day for the Nikkei based on the OHLC, did it go higher then lower (or vice versa?), or did it trade the entire range several times?

    Perhaps I missed the point Victor was trying to make…

  3. vniederhoffer on January 21, 2009 6:46 pm

    my point is that they both went below a round number for a split second, and closed above but at the low. the random probabilities of this would be close to zero. the correlations of the changes I reported on contemporaneous days, shows they are moving almost exactly the same taking account of the time difference with the open in nikkei related to the open to close move in spu. v

  4. Jonathan on January 21, 2009 8:25 pm

    Forgive my ignorance…

    Is the fact that both the S&P and Nikkei violated a round 8 number and rejected it demonstrates that these two markets follow similar “laws” of trading? What if you instead compare the Nikkei with the Dow (futures on the same day).

    date market open high low close return %range
    1/20 Dow 8175 8190 7870 7945 -2.81% 71.88%

    Does the fact that the Dow violated a round 8 on the same day, but did not close above it change anything in this analysis? Obviously there is a very high correlation between both US indicies returns and price action. Again, perhaps I am missing something subtle.

    I do concur with (my understanding of) your basic thesis that there is likely a strong correlation amongst equity indexes price behavior when compared contemporaneously. Thank you for always provding welcome insights into the markets…

  5. laslo minks on January 23, 2009 2:03 pm

    this is a bit off topic, but i find it interesting:

    in 2010 we will have:

    the 44th president of the united states
    super bowl 44

    this event can obviously only happen once ever.

    i suggest investing in the number 44.

  6. Mei Ying Nygaard on January 23, 2009 3:04 pm

    Superstitious Chinese would avoid the number four (its pronunciation in Cantonese is the same as death). 44 would not bode well for these Chinese.

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