Posts Tagged ‘correlation’

Charting The -1.0 Correlation Between Stock Prices And Volume

Charting The -1.000 Correlation Between Stock Prices And Volume

Courtesy of Tyler Durden

In our day and age, when implied correlation is approaching 1 with each passing day, and when nuanced relationships are ignored, as every correlation somehow immediately becomes causation only to be invalidated, chewed out and left for dead, there is one certain and virtually guaranteed statistical relationship left, that not only persists day after day but has now become its own self-fulfilling prophecy. We speak of course of the (inverse) correlation between stock prices and volume: i.e., "volume up, stocks down; volume down, stocks up." Rinse, repeat, over and over and over. Rarely has this correlation been as pronounced (although we have been discussing it for well over a year) as over the past 12 weeks. Behold.

What this means is that any distributions only occur to the downside, and that the second retail gets suckered into stocks once again, for whatever reason, the selling pressure will again materialize as the algo decides to take advantage of the "sidelined" money and be a better seller into every bid.


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In Other News, Larry King is Selling Divorce Insurance

In Other News, Larry King is Selling Divorce Insurance

Courtesy of Ken Houghton at Angry Bear  

Bomb with Lit Fuse

Many months ago, I quoted the brilliant Janet Tavakoli‘s book Credit Derivatives and Synthetic Structures:   

The trader then went on to tell me that Commercial Bank of Korea would sell credit default protection on bonds issued by the Commercial Bank of Korea.
"That’s very interesting," I countered, "but the credit default option is worthless."
"But people are doing it," persisted the trader.
"That’s because they don’t know what they’re doing," I affirmed. "The correlation between Commercial Bank of Korea and itself is 100 percent. I would pay nothing for that credit protection. It is worthless for this purpose."
The trader mustered his best grammar, chilliest tone, and most authoritative voice: "There are those who would disagree with you." (p. 85)

Apparently, that anonymous trader—or another money-losing risk-mispricing hedge fund manager—is now running The Big C:   

Credit specialists at Citi are considering launching the first derivatives intended to pay out in the event of a financial crisis. The firm has drawn up plans for a tradable liquidity index, known as the CLX, on which products could be structured that allow buyers to hedge a spike in funding costs….

"The great thing about the index is that it hedges your funding costs while being very simple to trade. I believe it will reduce the systemic risk in the industry, akin to how the advent of swaps means people don’t worry about interest-rate exposures any more – they just pay a fee to hedge it," he says.

Because if funding dries up, The Big C will be there to support you!

I thought this was an attempt to make money on a premium, but it isn’t:   

Like a swap, the contracts envisaged by Citi would be entered into without an up-front premium, with money changing hands according to the index’s movements around a fair strike value.

So the model is actually that you pay a higher cost of funds during good times, and during bad times, depend on the ability of your counterparty to make you whole.

When banks do it, it’s called "deposit insurance," and it is valuable because in the worst-case scenario, the U.S. Treasury can print money. Since—the last time I checked—Citigroup …
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In Depth: Correlation…. by Don Fishback

Adam Warner, Daily Options Report chart

Correlation: In statistics, it’s the degree to which two or more variables show a tendency to move relative to each other.  In finance, it’s the tendency of two or more securities, sectors or asset classes to move together.

Correlation values range from -1 to +1.  If one stock moves in perfect lockstep with another, the correlation is going to be +1.  If they move exactly opposite one another, the correlation is going to be -1.

Needless to say, a perfect correlation of + or -1 is nearly impossible.  But recently, we’ve seen a few examples where correlations have climbed to unusually high levels.  The correlations I’m speaking of are the various Sector SPDRs and the S&P 500 SPDR.

Continued at Don Fishback’s Market Update

 


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Phil's Favorites

What is at stake in the Strait of Hormuz?

 

What is at stake in the Strait of Hormuz?

Courtesy of Rockford Weitz, Tufts University

Tensions between the United States, Iran and other countries are flaring again in the Strait of Hormuz.

There are competing explanations for what’s going on in the narrow seaway through which 21% of the world’s crude oil currently passes.

Most of the reports of ...



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Zero Hedge

Wall Street Trading Desks Suffer Worst First Half In Over A Decade

Courtesy of ZeroHedge. View original post here.

With Morgan Stanley reporting Q2 results yesterday, the first half earnings of all "big 5" US banks are now public, and when it comes to sales and trading they are nothing short of a disaster.

With the S&P at or near all time highs, institutional traders have, paradoxically, been increasingly moving to the "sidelines" for much of the second quarter as Wall Street trading desks posted their worst first half to a year in a decade, according to ...



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Kimble Charting Solutions

Is Crude Oil Sending a Bearish Message to the Stock Market?

Courtesy of Chris Kimble.

Crude Oil (NYSEARCA: USO) and the S&P 500 Index (INDEXSP: .INX) have peaked and bottomed together several times in the past 9 months. See points (1) and (2) on the chart above.

In summary, the correlation between Oil and the stock market has been quite interesting and demands investors attention.

Crude Oil has been creating lower highs of late and is breaking price support at (3).

If the correlation remains the same, Crude Oil may very well be sending a bearish message to stocks.

Tricky spot for active investors – careful here.

...

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Insider Scoop

10 Biggest Price Target Changes For Monday

Courtesy of Benzinga.

  • Goldman Sachs boosted the price target for Applied Materials, Inc. (NASDAQ: AMAT) from $48 to $56. Applied Materials shares closed at $47.81 on Friday.
  • Citigroup raised the price target for Intercontinental Exchange Inc (NYSE: ICE) from $92 to $99. Intercontinental Exchange shares closed at $90.77 on Friday.
  • Nomura cut the price target on LyondellBasell Industries NV (NYSE: LYB) from $107 to $93. LyondellBasell shares closed at $85.92 on Friday.
  • ...


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Chart School

RTT Plus Chart Book (Sneak Peak)

Courtesy of Read the Ticker.

The magic of support and resistance channel lines and how they direct price. Here are some chart disclosed to members via the RTT Plus service. All charts are a few weeks old. 


XAU bound by parallel channel lines.


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Newmont Mining support from Gann Angles.



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US Dollar index (DXY) dominate cycle ...

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Digital Currencies

Cryptos Suddenly Panic-Bid, Bitcoin Back Above $10k

Courtesy of ZeroHedge. View original post here.

Following further selling pressure overnight, someone (or more than one) has decided to buy-the-dip in cryptos this morning, sending Bitcoin (and most of the altcoins) soaring...

A sea of green...

Source: Coin360

Bitcoin surged back above $10,000...

Ethereum bounced off suppo...



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Biotech

DNA testing companies offer telomere testing - but what does it tell you about aging and disease risk?

Reminder: We're is available to chat with Members, comments are found below each post.

 

DNA testing companies offer telomere testing – but what does it tell you about aging and disease risk?

A telomere age test kit from Telomere Diagnostics Inc. and saliva. collection kit from 23andMe. Anna Hoychuk/Shutterstock.com

Courtesy of Patricia Opresko, University of Pittsburgh and Elise Fouquerel, ...



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ValueWalk

Professor Shubha Ghosh On The Current State Of Gene Editing

 

Professor Shubha Ghosh On The Current State Of Gene Editing

Courtesy of Jacob Wolinsky, ValueWalk

ValueWalk’s Q&A session with Professor Shubha Ghosh, a professor of law and the director of the Syracuse Intellectual Property Law Institute. In this interview, Professor Ghosh discusses his background, the Human Genome Project, the current state of gene editing, 3D printing for organ operations, and gene editing regulation.

...

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Members' Corner

Despacito - How to Make Money the Old-Fashioned Way - SLOWLY!

Are you ready to retire?  

For most people, the purpose of investing is to build up enough wealth to allow you to retire.  In general, that's usually enough money to reliably generate a year's worth of your average income, each year into your retirement so that that, plus you Social Security, should be enough to pay your bills without having to draw down on your principle.

Unfortunately, as the last decade has shown us, we can't count on bonds to pay us more than 3% and the average return from the stock market over the past 20 years has been erratic - to say the least - with 4 negative years (2000, 2001, 2002 and 2008) and 14 positives, though mostly in the 10% range on the positives.  A string of losses like we had from 2000-02 could easily wipe out a decades worth of gains.

Still, the stock market has been better over the last 10 (7%) an...



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Mapping The Market

It's Not Capitalism, it's Crony Capitalism

A good start from :

It's Not Capitalism, it's Crony Capitalism

Excerpt:

The threat to America is this: we have abandoned our core philosophy. Our first principle of this nation as a meritocracy, a free-market economy, where competition drives economic decision-making. In its place, we have allowed a malignancy to fester, a virulent pus-filled bastardized form of economics so corrosive in nature, so dangerously pestilent, that it presents an extinction-level threat to America – both the actual nation and the “idea” of America.

This all-encompassing mutant corruption saps men’s souls, crushes opportunities, and destroys economic mobility. Its a Smash & Grab system of ill-gotten re...



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OpTrader

Swing trading portfolio - week of September 11th, 2017

Reminder: OpTrader is available to chat with Members, comments are found below each post.

 

This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current  trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).

We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options. 

Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.

To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here ...



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Promotions

Free eBook - "My Top Strategies for 2017"

 

 

Here's a free ebook for you to check out! 

Phil has a chapter in a newly-released eBook that we think you’ll enjoy.

In My Top Strategies for 2017, Phil's chapter is Secret Santa’s Inflation Hedges for 2017.

This chapter isn’t about risk or leverage. Phil present a few smart, practical ideas you can use as a hedge against inflation as well as hedging strategies designed to assist you in staying ahead of the markets.

Some other great content in this free eBook includes:

 

·       How 2017 Will Affect Oil, the US Dollar and the European Union

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About Phil:

Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...

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