A Leading Indicator For The S&P 500 Emini Futures
August 22, 2012 at 9:54 PM (QQQ)(DIA)(SPY)(GLD)(FB)
Is there really a Leading Indicator? One specific market that signals the world that the S&P 500 is about to make a move? Until today I was pretty steadfast in my argument that the answer was "No". If you've listened to the show for any length of time you know my list of reasons is itself quite lengthy not the least of which is that if there was such a thing, we would all know about it and would each be trading from our own sovereign nation (island). Argument #2 on the list and probably the most sound is the markets would simply cease to exist as everyone would be exploiting the same edge rendering it useless.
Have I changed my mind? No. However, based on some input today from one of our Partners and a few other seasoned traders there does seem to be one idea that just might have some merit.
AUD/JPY - A Leading Indicator For The S&P 500?
Australia currently has the highest interest rate in the developed world and is the currency people will BUY if they are willing to take Risk. The Japenese Yen has the lowest interest rate, although the US Dollar is now considered the official Carry Trade Currency. However when people preceive risk in the markets, the Yen will show the most strength as traders move to buy it.
The basis of the idea is that the AUD/JPY acts as a risk on/risk off indicator and is strongly correlated with the S&P 500. According to the theory, if this currency pair is rising, traders are willing to take on risk and as a result the S&P500 Emini Futures will follow. When this pair is declining, traders are looking for safety and the S&P will decline also as traders exit their positions.
We are not here to make a definitive statement on this theory. We will approach it with an open mind and see if we can find enough real time correlation to apply it to our intra-day Emini Daytrading. We will aslo track it on larger time frames to see if we can find value as a backdrop to our longer term swing trades. Thanks to Bruce H. and Burt for bringing this up on the show today.
We will watch the charts over the next few weeks and post our findings here on the blog. If you have a method you use to implement this theory, please share it in the comment section below and please email your charts to charts@cfrn.net with AUD/JPY in the subject line and I will post them.
If you have a different Leading Indicator that you use, please feel free to share it and send along some annotated charts to help the community see what you see.
Simple Emini Trades
Here are 2 more Simple Trades from today that will be included in an upcoming Simple Emini Trading Video.
(ES) S&P500 Emini Futures - Simple Short
(ES) S&P500 Emini Futures - Simple Long
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