Trader Scott’s Market Blog
December 6, 2016
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We received a good question from Frank asking about the correlation between the Yen and gold. There is an interesting relationship going on there. It’s a fairly new phenomenon, as far as the somewhat tight correlation, which really started in earnest in July 07 (3 months before the GFC Dow high on 10/12/07). I don’t use moving averages, but this relationship acts basically like a moving average to each other. Meaning, sort of a coincident trend indicator. In the bigger moves they tend to correlate well. But like the subject of a previous blog post, the relationship misfires when it’s needed the most, at the turning points. They don’t bottom and top together. There are 2 charts to use to compare the Yen and gold, going back about 10 years. The Yen chart and the gold chart(please ignore the squiggles for now) show that in the bigger picture they tend to trend together (for now, I expect this relationship to change). I don’t actually use this relationship, but because so many people view this correlation favorably, a while ago I spent some time researching it, and then updated it today. And it still is the same situation to me. It’s at the short term, intermediate term, and longer term turning points (entry points) where the divergences show up. And it’s the entry points (timing) which are so important in markets. Divergences are very tricky to work with. They’re lagging indicators, meaning you’re looking in the rear view mirror to use them. Because it’s only after the fact when you “know” whether there is a divergence or not. This situation leads to guessing, which is a dangerous tactic in markets. I need to know in real time when/where to enter into a market, lagging indicators don’t help me. But some people like to use them, so my suggestion is to go thru these charts and very precisely see how the 2 markets trade vs. the other. For instance last year as gold was going to new lows in July, November, and December, the Yen was setting higher lows. This could potentially be of use to some people. And in the bigger picture between gold and the Yen, do you notice what’s really going on anyway?
As far as the Yen itself, since the June 24th high, it has come down quite a bit. There is a lot of support below .85 (around 118). I am very bearish on the Yen long term, but we’re in a time frame for a shorter term bounce, along with a pause in the $. As far as gold, the miners are attempting to lead the complex. This will take time, there will be more re-testing, but there are bigger bullish forces coming next year – for all commodities. An upcoming rate hike is assumed to be bullish for the $ and bearish for gold. This was also the assumption last December.
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.