Movement in the US Markets as a Short Term Indicator

[AMSH]

Hi All,

Just looking for some discussion on the following:

I'd always understood that the Aus equity markets followed the US quite closely - this is demonstrated fairly easily be looking at the correlation between a US index and the All Ords for example. I was also under the impression that movements in the US (for example a higher close) would have an effect here - you're always hearing that stocks here moved higher or lower based on a strong or weak lead from the US. I understand the limited value of the financial press and that explaining movements after the fact is easy and often pointless, but in this case it always seemed rational; the US is the largest economy on the planet, and it's health will have an effect on the rest of us. Fair enough. If the US had a good day, then we have a higher probability of having a good one.

Now for the problem. I've had a quick look at the relationship between the movement in the US indices and the XAO the next day and i find it's practically nil (it is only just positive over 20 years with extended periods where the correlation is negative - up days in the US are followed by down days here on average). Am i missing something? Has anybody else had a look at this? Shouldn't an up day on the US indices at least have some postive correlation to an up day here? Granted, I haven't done a full analysis yet but I would have thought that the relationship would be strong enough to show itself from a fairly simple test (does an up day on the S&P500, DOW or NASDAQ result in a higher probability of an up day on the XAO - it doesn't seem to)?

If this is simply a case of beleiving it because I've heard the press say it so many times, I'd be very surprised.

Any thoughts appreciated.

AMSH

 

[Wysiwyg]

Hi All,

Any thoughts appreciated.

AMSH

This daily chart is derived from data supplied by Yahoo. I assume it to be accurate enough for this discussion. The DJI is yellow and the All Ords is black. On this time frame it is obvious there are times of correlation and times of disassociation. Nothing is exactly the same and a 2% move on the DOW doesn't equate to a 2% move everywhere else. There are many factors involved of which I am not of knowing but I would not translate another indexes % or point move into ours. A guide at least.

 

[Wysiwyg]

I'd always understood that the Aus equity markets followed the US quite closely - this is demonstrated fairly easily be looking at the correlation between a US index and the All Ords for example.

On a shorter time frame any correlation is even less convincing. I think because the Aussie market reacts to other markets is the reason why it loses correlation with the U.S. We also take the lead sometimes so all this mixes the game up a bit. It isn't a simple matter of jumping on a correlated market to make a winner every time. Additionally each country has their own collective mind. This can be observed in charts. Generally though if the U.S. drops sharply we all follow.

 

[yonnie]

dont know if your charts prove anything at a glance.

looking at the longer term chart, the US is up a lot more in the 1995-2000 years than the Ozzie market.
but it doesn`t mean that when the US is up, the Ozzie isn`t.
it might be at a slower pace......US up 2% for the day, Ozzie 0.25%.

a detailed study is needed to prove or disprove anything.

 

[Trembling Hand]

https://www.aussiestockforums.com/forums/showthread.php?t=15795

If you think the funds that drive the Aussie & other Asian markets are just dumb money waiting for a lead from the almighty US you're a long way off the mark.

Then if you think that the funds that drive the US wake up each morning and ignore what happens in Europe and Asian then you are moving even further away from reality.

Its all linked, movements in one market usually create opportunity in others rather than all markets following one.

Not to mention that you haven't discussed where the real correlations lie. USD & JPY on one side and risk trades on the other.

 

[SmellyTerror]

always hearing that stocks here moved higher or lower based on a strong or weak lead from the US.
...
If this is simply a case of beleiving it because I've heard the press say it so many times, I'd be very surprised.

I think this was an idea from TH: keep a book on what you expect will happen when certain upcoming events occur, and then record what actually happened. Keep track of what the media says just happened and why, and look for the same reasoning to come up again.

Seriously, write it down. Unemployment coming in tomorrow? What do you think will happen if it's high? What if it's low? What have the media said after the fact in the past? Now wait and see what acually happens.

It's... educational.

In my limited experience, you see "despite the lead from" or "shrugged off" about as often as you see "following the lead from" or "after". Even when they can cherry-pick any damn excuse they like, they still sound confused half the time.

 

[noirua]

21 October 2020