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Markets are connected - Fact!


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Just for fun I thought I'd throw this out and see if anyone has any strong feeling on it.

 

While I analyse markets individually and assess them on their own technical merits, even eschewing fundamentals, except big ticket items for long term trend creation (e.g. GDP, unemployment and interest rates), I do believe that all financial markets are connected in some way, sometimes obviously and sometimes less so.  However this connection is not constant in terms of cause and effect, especially in the short to medium term.  When it works though it really works.  Take just now for instance:

 

  • Stock markets are falling and gold/silver is on a charge (however gold did not drop when stock markets were on the recent rally, just went into a sideways range)
  • Stock markets turn just as Oil and Copper turns (silver stutters more than gold because of its industrial usage?)
  • Platinum and Palladium also stuttering like silver and then gold starts to drop too (jitters catch on everywhere and gold is not cheap!  But it will probably rally again if stock markets continue to drop?) 
  • USDCAD pops as Oil drops and USD DX starts to move up
  • Same for AUSUSD (in reverse) as Copper (a mining indicator) drops
  • Stock markets under pressure, cue flood to safety of cash (i.e. USD) GBP/EUR also drop vs USD and JPY surge is halted (will it now reverse?)

It is not consistent and hard to spot the correlations in advance but when you can and it works it is a a sight to see...

 

Medium term it look to me like a final leg down in Dr Copper and Oil and final leg up for USD together with that big drop in stock markets we have been looking for.  Cue Bull run in precious metals, the current move is a natural retrace and who knows what will happen in the bond markets but if they crack then ****! 

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One additional thought regarding Gold, which seems to be on many peoples minds right now as a safe haven.  We like to think that Gold moves contrary to the stock market but if you look at a long term chart for Gold and S&P over the past 20 years or so you will see some consistency of direction.  The two markets only really parted ways in 2011 when Gold peaked.

 

So watch out if part of your trading approach assumes Gold will rally when stock markets fall and vice versa.

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