Correlation between S&P 500 and XJO

From our new expert daytrader in the XAO thread who stated,

makingmoney said:

u saying what effect the dow has on our market if any +100 or down...hmm do u day trade.....we mirror image the dow..if it has a bad day so do we..."if america sneezes the world catchs a cold" end quote..not saying we following it 100% but i say 95% chance if the dow is down...we follow the next day some what the same..

Click to expand...

I thought I would actually put some numbers behind this statement as it comes up all too often. That we mirror the States.

Taking the straight close on close figures from both the S&P 500 and the XJO in percentages. I have graphed each days move of XJO with the previous days S&P 500 as a percentage.

Out of 63 days from the start of March there has been 14 occourances where the XJO finished in the opposite direction to the S&P 500 (22%).

The statistical correlation is 0.54. Certainly a correlation but a long way away from 1 to 1 moves. A visual scan of the graph shows the big yawn the Aussie market gives to large moves on the S&P 500.

Tomorrow I'll do some more on the moves from our open to close compared to the S&P 500 moves.

Look at the strong correlation between $DJ and XJO
*cough cough*

lol @ correlation...

I still reckon Aus leads rather than follows. (After the first 3 hrs)

The SPI moves in tandem with the SP500 in the overnight session, so the US session movement is already priced into the ASX200 upon opening, your better off doing correlation analysis with futures data opposed to the cash indicies because they trade in different timeframes.

I think you would gain insight into futures actions by first asking what is the immediate action of the xjo players in the 30 mins following the cash close....ask, what are the percentage gains (short or long) in the swings prior to the the us markets next session...that is, you look for the moves that suggest the distribution (during times when major players anticipate a lower index level) and then place that into context of opportunity for them to take on supply.....there is no point in simply asking does the xjo follow or does the spx et al follow...afterall, by the time you know, the points have been travelled and the chart is history.....however, by context of the local trend you'll note that in some years the spx may make a minnow percentage gain while the xjo may make multi figure gain on a weekly/quarterly basis.....what this tells me is that the trend itself (that is, did xjo follow the spx) is irrellevant as to the percentage of the move....if the spx declines, in a strong uptrend, of say 1% and the xjo traders use that as an excuse to take on more supply then we may well decline 1.5% the following day..however, that is a backward view, so, you need to look at how the xjo moves prior to the us not after.....sydney futures players are very savvy...the news in the market is pretty much already known.....also, this week I traded the ftse and noted the days when the xjo post cash stays bouyant while the ftse ascends (instruments listed on the ftse from aus) is not always the same, that is, there are sessions when the both the ftse is bouyant and the spx is flat yet the xjo declines the next session, so, does that mean that the xjo is responding, or, more likely, the traders see that this is the opportunity to not buy at current offer, rather, allow supply to come to them from nervous traders.....you see, look at the context of supply and demand within the the whole trend set-up.....think in terms of liquidity in the asian area, liquidity through the fx markets....think of what is available to the players on the opposite side of the trader who have the opposing view of a falling/climbing price on a session over session basis.....

..has been a while since ive been in here and clearly remember trembling hands frustration over the non-thinking on this subject....there is much more than proffering "doesnt one follow or lead?"...again, the answer is largely irrelevant as the answer cannot be traded, yet, should lead the trader to, then, ask the right questions.....

let's take a gander....

.....on a year over year basis the xjo clearly faired worse, ahead of time, at the (us oct 02 low) and didnt bottom until the 2963 march low here and mar confirming low in the us.....

the slow and inexorable climb today of the xjo has me ask, is the move down by the spx into the daily lows of 880 a giant head-fake? especially given that the 20 day new lows did not expand......this maybe an attempt to fish the low end of supply and i also noted the instant upwards pull back post-cash in the us.....while the dax and ftse are clearly leading the us downward (they usually do, imo and with some evidence from the charts) .....also the head/shoulders in global indecies is NOT yet confirmed....the only real insignia on the flag is the strong liquidity flows out of markets according to mister Twiggs.....todays return on the xjo is another strong indicator that australian players have a clear agenda of their own which is (obviously) rarely understood and not entirely easy to read (i bet they're glad about that)

Trembling Hand said:

From our new expert daytrader in the XAO thread who stated,


I thought I would actually put some numbers behind this statement as it comes up all too often. That we mirror the States.

Taking the straight close on close figures from both the S&P 500 and the XJO in percentages. I have graphed each days move of XJO with the previous days S&P 500 as a percentage.

Out of 63 days from the start of March there has been 14 occourances where the XJO finished in the opposite direction to the S&P 500 (22%).

The statistical correlation is 0.54. Certainly a correlation but a long way away from 1 to 1 moves. A visual scan of the graph shows the big yawn the Aussie market gives to large moves on the S&P 500.

Click to expand...

This is an old thread, interesting comments and statistics TH. You hear that comment all to often, if only you could turn that comment into a measureable trading system lol.

If i can just add my 2 cents, from my experience day trading there are a few things that will contribute to the SPI movement. I dont wish to make any generalizations because statistical evidence is the best evidence.

What I would like to see if those yawns as you put it TH are from 1 of a couple of things, firstly, S&P futures after hours moves.

secondly a large part of our market is commoditey driven, where as the US was primarily financialy driven. So some charts on commodity prices v SPI moves would be interesting as well.

Thirdly, not measureable technicaly but there are always going to be reports which measure sentiment, such as consumer spending, inflation, so on that will drive a session.

Food for thought.