Asia's Daily Impact on US Markets
Monday, August 23, 2010 at 06:03PM Last Thursday we posted an interesting chart that basically highlighted the correlation between the market futures before the open and the action during regular trading hours. We showed that historically, the S&P 500 SPY ETF has basically gone in the same direction at the open as it has from the open to the close 50% of the time. The other half of the time, the market went in the opposite direction during the day as it went in the pre-market.
Some of the comments on that post suggested we look at the correlation between the previous day's action and the next day's action as well as the daily correlation between Europe's markets and the US. To compare Europe and the US, we would have to see where Europe's markets were trading when the US opens, and since that's in the middle of Europe's trading day, we need intraday pricing. Unfortunately, we don't have intraday pricing for most foreign indices. We can, however, see how often the US trades in the same direction as Asian markets since they close before the US opens.
Below we highlight the number of times over rolling 50 trading day periods that the S&P 500 has gone in the opposite direction of the S&P Asia 50 Index. Historically, the average number of trading days that the US has gone in the opposite direction of Asia over a 50-day period is 22. That means that the US trades in the same direction as the Asian markets on a daily basis about 56% of the time. As shown in the chart, this indicator does fluctuate from low levels of correlation to high levels of correlation, and we just ended a period where the two were trading in tandem with each other more often than not. Over the last 50 days, however, the two have gone in the opposite direction 22 times, which is right inline with the historical average.
Reader Comments (4)
While you are at it, I have the following request and am very curious about the result:
Take the intraday direction of the last 30 or so minutes of a trading day and see if the market continues in that direction the next day after the open (or throughout the day). Is that something that you could produce?
Thanks guys. This is a really interesting series.
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