AUDJPY Long term anomaly? 30-Jul-2015

Since early last month, some of stock indices have been downward trend with Chinese stock market plummeted. List of major stock indices are listed on a post in the past.

By the way, although anomaly is just anomaly without any fundamentals evidence, it implies the time for risky asset to be adjusted. We have introduced anomaly in stock market on this blog, Forex Flyer.

AUDJPY 1993 - Present

For a last 2-3 years, AUD has been declined against major currencies due to the interest rate lowered. Some market analysts mention Australian economy highly depends on Chinese economy nowadays, and it implies current Chinese market slow down badly affect to Australian market. If Australian market is being slow down further, the interest rate could be cut to ease financial policy. It means AUD will be at downside risk in that situation.
This is just a mathematical trick, anomaly oddly describe AUDJPY stays near the peak, applying trend & momentum analysis. JPY is typically strong while global market is shrink and vulnerable while AUD is considered more risky asset relatively.

The fact is the market has become very volatile for months, facing geopolitical issues, such as Greek bailout or Chinese stock market.

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Anomaly in Stock market? 9-Jun-2015

Since the end of last month, stock markets have declined in major economies, UK, US or Japan where Nikkei down more than 1.70% of the last closing.

It is some sense of anomaly to bring technical analysis into the stock market. Some of the stock indexes are likely near the peak of long term cycle. Back to Nov-2014, the potential cycle has been observed in FTSE 100 and Dow Jones Industrial Average indexes, and it was introduced in this blog.

Although the stock markets have not crashed critically yet since that time, the recent market is relatively volatile particularly this month. The cycle analysis still indicates the stock index is still near the peak of potential cycle in FTSE 100. Despite the cycle of DJIA not clearly detected, correlation between DJIA and FTSE 100 is more than 80% in last 20 years. Once one of them has crashed due to critical event, another could suffer as if it is like dominoes.

The market cycle is sometimes anomaly, and it means nothing more than mathematics or statistics. But the fact is both of stock market and bond market are relatively volatile in those days.

Stock Market Risk: Correlation and Triple top 26-Nov-2014

In the market crisis, such as Lehman crisis, stock prices have going down simultaneously in global markets. Uncertainty is always related with Correlation.

I. Correlation

You might have wondered that global stock markets are correlated each other. Last month of Oct-2014, stock indices in global market has been steeply declined simultaneously only except for Chinese market, Indian market or a few others. (See the post.)

Statistically, correlation among global stock indices exists. A below table shows correlation matrix among some major stock indices, which has been estimated from last 18 years. (Click to see in large scale)

Elements whose correlation is more than 50% is filled in blue. You see those stock indices are highly correlated each other.

Although each stock index is dominated in each domestic currency and FX effect exists in measuring, the higher correlation implies those stock indices tend to go up or down at the same time.

Statistics tells us that global stock indices seem be highly correlated each other.

II. Triple top

The idea of triple top may not scientific, but it says stock value is going down after the value has reached at top three times. Naysayers will say it is case by case in scaling of chart, how to define the top, ....

However, the most major indices, FTSE 100 and Dow Jones Industrial Average, are described with triple top for last 18 years. Applied trend & momentum fitting, the right figure implies somehow market cycle is observed and the current market seems be near the top of a cycle.

Obviously, this is just statistics and out of fundamentals discussion. But to avoid uncertain disaster, we must keep structure of our own portfolio in mind and restructure as necessary.