What is the corelation between the intraday trendof stock market and treasury note yield? Is there any general rule can be exploit to help daytrading stock index future? In a normal trading day, which one should lead the other one? Thanks. -- Clearpicks
I've been watching this for a while and every day is different. Sometimes, they move in the same direction and sometimes they move opposite and sometimes they have no correlation.
The rule of thumb is the smart money leads the bonds around, and that in turn moves every other market around. INtraday though they may very well go out of sink. It's more a longer term indicator and even then it's not as straight forward since you need to analyse the yield curve not just the ten year.
From Stock Market Wizards interview of Mark Cook: Another trade I do is the bond ratio trade. The bonds and S&P are like a couple. The bond market always leads, so it is the female, because the male always follows the female. When a couple first start to date, they don't know each other yet, and they will be a bit out of harmony. On analogous markets days, when the bonds go up, the S&P may also go up, but it won't follow very tightly. Then they get engaged, and the relationship becomes closer. Then they get married and go on a honeymoon. When they are on a honeymoon, everything they do is synchronous. On "honeymoon days" in the markets, when I see the bonds go up a few ticks, I know the S&P will immediately follow, and I will buy the S&P for a quick trade. After the honeymoon, when they settle into married life, the bonds will drag the S&P husband along, but they are not quite as joined as they once were. Then the couple gets estranged, or in market terms, whenever the bonds go up, the S&P will likely go down. Then comes the bitter divorce. On "divorce days" the bonds and S&P will move in exactly opposite directions. Every day, I make a determination of what type of day it is. Today, for example, the bonds were going up, and the S&P was selling off. The Street called it a "flight to quality," but to me it was just a "divorce day."