It really depends on what you are trading. For the ES, you really need to watch different stock sectors. For oil you might watch the dollar. For bonds you might watch ES. The correlations come and go so this is no set answer no you don't need to have the same OR. These markets all trade together. In other words, just because ES opens at 8:30 does not mean it's not trading at 7am if oil spikes around that time. You don't need to have A levels to see how the ES is reacting to a spike in oil.
Thanks for the quick reply. That makes sense. When you are watching market correlations, a what point would you determine two markets are no longer trading together? For example if ES and bonds are negatively correlated for say 6 months and the negative correlation stops holding up for a number of days, how long would you wait before you would determine the traditional relationship has changed? I am sure there is no perfect answer, but just wanted to get a sense. Thanks again
A Ups/Downs from the Russell 3000: Monthly: As of the 14th trading day of February, there have been 930 ups and 171 downs, for a net 759. The rolling 5 day is 534 and the rolling 30 is 511. Compared to other months these are big numbers. On Januaryâs 14th trading day (1/22/) there had been 831 ups and 497 downs. The 5 day was falling at 255, went negative two days later and stayed negative for the next 10 days. Quarterly: Are running high too but I need to run a few ssâs for accuracy. Yearly: Ups and downs running about par. So far the ups seem to have an event and keep going. You can see that many made monthly ups early in Feb and were also making new 52 week highs: AKAM,ATHN,ATMI,CLW,EA,FTK,GMCR,HAR,HELE,HW,MTRX,MYGN,NATL,NFLX,NVR,ORLY,SBNY,TXI,VGR.
Usually there is a catalyst that breaks the correlation. So you have to pay attention to what's going on in the market. Sometimes you have to play market detective. Also look for big volatility moves to signal the beginning or end of a corollary period.
Interesting article that breaks down the action in natural gas over the last two weeks in case anyone was sleeping and wasn't aware we had the largest volatility moves in history for the product. Carnage on the Natural Gas Market By Matthew Philips February 27, 2014 The natural gas market just convulsed. After years of flat, relatively low prices ranging between $2 and $4 per million British thermal units, the past two weeks have been the most volatile period ever. Yes, ever. On Feb. 10, natural gas was about $4.50 per million BTUs. Ten days later the price was up 30 percent, to more than than $6. Today itâs back down to $4.50. There was a similar move back in the winter of 2003, but that played out over two months. âThis has happened over two weeks,â says Teri Viswanath, a natural gas analyst at BNP (BNP:FP). âIt is without question the most volatile pricing environment we have ever witnessed.â A graph of a yearâs worth of natural gas prices looks like a rolling landscape with a giant, needle-shaped skyscraper stuck at the far right end. The past two weeks have been the most volatile period in natural gas prices ever.BloombergThe past two weeks have been the most volatile period in natural gas prices ever. So what the heck happened? The first part can be explained in two words: polar vortex. With record low temperatures and an epic winter still blasting much of the country, demand for natural gas has been much higher than in previous winters. So prices jumped as traders got bullish and speculators poured money into natural gas futures contracts, betting on rising prices. According to Timothy Evans, an energy analyst at Citigroup (C) Global Markets who keeps a composite of futures contracts across a handful of exchanges, financial speculators in November owned about 140,000 natural gas futures contracts. Each contract is for 10,000 million BTUs, which means that in November, when natural gas was trading at around $3.55, according to a very rough back of the envelope calculation, speculators were sitting on a net long position of about $4.9 billion. Fast forward to Feb. 19, and speculators were holding 564,640 futures contracts, a record long position, says Evans. By that time, natural gas was trading at around $6, giving speculators something along the lines of $30 billion in natural gas contracts. Again, thatâs a record. And then, the selloff began. Through Wednesday, prices were down 22 percent for the week, marking the biggest three-day loss since December 2005. Now speculators selling natural gas contracts at the end of February isnât exactly strange. Itâs actually what they always do. The trade is known as the widow-maker. As futures contracts for March expire, as they did on Wednesday, traders roll their positions forward into April and May contracts. Since the end of winter is approaching, the spring months tend to be what are called shoulder months, when temperatures rise and demand for natural gas falls. Along with prices. Part of that is profit-taking. Prices had jumped $2 in 10 days, so traders were ready to sell at the beginning of the week and call it a win. But the selloff shouldnât have been that severe. Something else is going on, and itâs puzzling a lot of traders. âThe selloff has been breathtaking,â says John Kilduff, âAnd itâs not just the typical things that tends to happen this time of year.â One trader at JPMorgan (JPM), who spoke on condition that his name not be used because his bank is an active trader in the natural gas market, says there is a lot of confusion about whatâs behind the sudden price declines. Viswanath thinks she has an idea of whatâs going on. Typically, as financial players sell gas futures contracts at the end of the winter, big consumers of the fuel, such as utilities and power companies, step in and buy in the physical market. That ends up smoothing out the price fluctuation. âThereâs usually a clean handoff that takes place this time of year, between the paper and the physical market,â says Viswanath. âBut that didnât happen. The physical consumers arenât buying, and Iâm not sure why.â One reason could be that April is expected to be warm, so natural gas demand may be muted. Thatâs probably the same reason that banks and hedge funds have been selling so heavily and not rolling into April at the current prices. Still, without that clean handoff, prices have moved much more dramatically, leaving many people with wrong-way bets. The carnage is starting to show up. Barclays (BCS) said on Tuesday that it was shutting down its U.S. power trading desk. With the U.S. using more natural gas to make electricity than it has in years, having a sour position in natural gas can easily translate into big losses for a bankâs power trading operation. Itâs not just banks, either. Commodities trader Cargill reportedly lost $100 million trying to trade in mid-Atlantic power markets. Two natural gas traders and one natural gas broker, all speaking on condition of anonymity, said rumors are flying around about energy hedge funds taking big losses over the past two weeks, with one saying the loses were big enough to lead to some of them closing down. Philips is an associate editor for Bloomberg Businessweek in New York. Follow him on Twitter @matthewaphilips. http://www.businessweek.com/articles...ral-gas-market
Between Amaranth and these latest closures, NatGas earns the "widowmaker" title. Not suprised because there is no good way to spread this market. Hard to find anything correlated outside its own term structure.
Actually I think it's a great spreaders market. I find the correlations on the front strips to be very high against flat price with the bonus of added convexity. The issue here is the storage spreads. These are the ones that kill people and have very little correlation to flat price because you are betting on the final end of season storage number. Historically they overstock and the mar/apr spread is always over priced and it looks juicy to sell and get the free money. This winter was the worst in 50 years and the spread blew out. The issue here is there is no real way to hedge that if you are wrong because the term structure offers no value to the storage spreads. The more I dig into the 1000's of spread combinations, the more interesting they become. There are some interesting dynamics further out in the curve with gas because of the future of this market i.e LNG growth, natural gas liquids and the role they will play, environmental considerations, etc. All these spreads further out have options embedded in there that are ripe for the taking. Some of those options are damn near free. All you have to do is find them. I think nat gas is by far the most interesting spreading market and I guess John Arnold would probably agree.
Fyi, crude oil confirmed for me on the 25th of last week. Confirmation plus Geo-poltics means good price action.
Hello- When you posted "Fyi, crude oil confirmed for me on the 25th of last week" did you mean that there were two days with the 30 day line greater than 9? If that is so, do you calculate the 30 day line numbers differently than how Fisher does? I ask this because Fisher's website shows 30 day for Crude as: Date 2/21 2/24 2/25 2/26 2/27 30 day Cum ABCD 0 2 6 6 2 Thank you.