Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!

Today’s Pair Trade Of Consideration: Short SPY, Long EURJPY

Courtesy of Tyler Durden

We have long observed the recent tendency for the EURJPY to track the SPY almost identically on an intraday basis. Today, this relationship is no exception.

To be sure, some correlation traders have over the past several months picked up on this trend and use it with a higher R2 than any other corr. The keyword here, however, is recently.

What has caught our attention is a long-term chart of the EURJPY, which today tumbled to levels last seen in February 2009.

Of course, February/March is when the S&P was probing those satanic numbers.

So how has this correlation stood up over the past two years or so? In a word – Not so good.

The relative spread between the two series has diverged materially and even as the EURJPY tracks the regular hours market, the correlation is broken afterhours, when, as we have pointed out, a bulk of the Q3/4 gains in the S&P have occur ed. Which is why we are confident that the spread will compress dramatically over the next several months, if and when that increasingly more fishy buying momentum in the SPY disappears. Furthermore, as the intraday algos track the EURJPY almost with R2=1.000 precision, we feel that in short order the program horizon will be expanded to take advantage of this longer-term discrepancy. Which is why, purely on technicals, with no regard for EUR or JPY relative strength, we are confident that a Short SPY Long EURUSD convergence play bears very little risk as the two time series cease divergening from a mid- to longer-term basis. One notable observation: should this correlation revert and the EURJPY stay flat, the fair value of the SPY is now at around 75, or almost 40% lower from current levels. With computers trading the market with no regard for fundamentals, and should the strength of the EURJPY signal be augmented, we see this SPY retracement as a distinct possibility.


Do you know someone who would benefit from this information? We can send your friend a strictly confidential, one-time email telling them about this information. Your privacy and your friend's privacy is your business... no spam! Click here and tell a friend!





You must be logged in to make a comment.
You can sign up for a membership or get a FREE Daily News membership or log in

Sign up today for an exclusive discount along with our 30-day GUARANTEE — Love us or leave, with your money back! Click here to become a part of our growing community and learn how to stop gambling with your investments. We will teach you to BE THE HOUSE — Not the Gambler!

Click here to see some testimonials from our members!