Wednesday August 24, 2005 - 11:03:55 GMT
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Black Swan Capital - www.blackswantrading.com
Another crude currency relationship
“We conclude that the concentration of wealth is natural and inevitable, and is periodically alleviated by violent or peaceable partial redistribution. In this view all economic history is the slow heartbeat of the social organism, a vast systole and diastole of concentrating wealth and compulsive recirculation. ”
Will and Ariel Durant, The Lessons of History
Forex Trading - Hodgepodge
Another crack at a crude relationship
A friend of mine loves it when I talk about crude oil in this publication—or should I say: rant about how over-extended crude oil appears technically. Each time I play that game, crude usually rises about 2 bucks a barrel either the same day or the day after. As he is long, and has been for a long time, showing incredible conviction even during the pullbacks, I want to do my part again this morning to help him out.
We displayed a chart of the euro versus crude oil recently, showing how closely they have been correlated over the last month. Today, we do it again, but this time we use the British pound, with an even tighter correlation to crude compared to the euro—its 30-day correlation with the black stuff is over 90%.
We keep asking: Why is this correlation so darn tight? And we keep coming up wanting for a good answer. We wonder who leads and who follows in this relationship. Is it a relationship or just a coincidence? Are we being fooled by randomness in trying to draw any conclusions between the two? The answer is probably yes, but we just can’t help ourselves.
And because we lack any plausible explanation, we continue to reach into our bag of bones. And after three or four good bone throws on to our desk top, this comparison emerged recently:
The sequential sell notation on the charts is a technical setup defined by Tom DeMark. It is based on a series of higher closes in sequence, leading to a sell signal. We counted a sequential sell on both crude and the British pound—only one day apart. The chart on the left is crude (October contract pit, which doesn’t show the overnight session gain), the right is the pound. The pound was hit hard in Asian and European trading.
But, this bone-throwing game may all be simply “fun with numbers.” I may again make my friend very happy, choosing crude oil as my topic today. Because as I write this morning from Black Swan’s lower east side pad, located in the thriving metropolis of Palm City, Florida, the wind is blowing and the rain is coming down, thanks to a tropical storm destined for a direct hit—again—through the area. The potential is for a hurricane to develop, wallop us, again, and head through the state into the Gulf of Mexico. And we know what’s in the Gulf, don’t we!
Euro zone growth…Is it an oxymoron?
Yesterday, we said that disappointment in euro zone growth might be enough to throw the euro bulls off their game. We noticed this brief summary from Brown Brothers Harriman yesterday, describing Germany’s recent numbers, and it didn’t exactly sound impressive:
"Germany’s second quarter GDP was unrevised, as expected, showing a flat quarter/quarter result. The details of the report were mixed: although domestic demand rose, that gain was led by inventories. Final domestic demand is still struggling to gain momentum however, and while leading indicators suggest recovery will resume in coming quarters, we doubt that rebound will be a rapid affair."
Black Swan Capital
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