Correlation Divergence

Well I must admit that I don’t have a clue what’s happening in the markets now. The markets opened positive on large positive surprise in non-farm payrolls and in mid of trading  everything reversed. Three reasons come to my mind: first is a deeper look in unemployment numbers; the second one would be the new low in Nakheel bond indicating a stall/collapse in Dubai World debt restructuring efforts and the third would be distorted correlations at opening today that disoriented algorithm driven trading.

Calculated Risk Blog provided superb in-debt look at the unemployment figures: If the Economy lost Jobs, why did the Unemployment Rate decline? If the details would matter we would probably not rally 65% from the lows…

Nakheel bond? I titled one of my posts on Dubai: One Day Scare, I tend to think it will remain just that.

So, I would bet on distorted correlations. U.S. dollar moving 1.6% up caused gold to fall 5%.

Chart 1. U.S. Dollar Index

Source: StockCharts

Source: StockCharts

Chart 2. SPDR Gold Shares

Source: StockCharts

Source: StockCharts

So the question is: What if the U.S. dollar reversal continues? It could get ugly…

, , , ,

This entry was posted on Friday, December 4th, 2009 at 2:12 pm and is filed under Markets. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

Comments are closed.


Get Adobe Flash player