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The short term lid on the US dollar

Comments from Westpac senior currency analyst Sean Callow quoted in a Reuters piece in response to Powell speaking on Thursday (US time).

  • “Shorter-term, Powell just put a lid on the US dollar”
  • “The baseline case is still for a substantial acceleration in the global economy, which historically has proven to be positive for most currencies against the USD, but I think there is potential to at least have a debate over whether us USD will be quite as weak as people expect. “

Circuit breaker levels to watch in the S&P 500 later today

How low can you go?

SPX

US futures hit limit down very early in the trading day and with European equities pointing to a 8-9% drop across the board, it looks like US stocks will be headed for an extremely rough open later in the cash market (S&P ETF down by nearly 10% now).
Here are the key circuit breaker levels to watch today:
  • Level 1: 2,521.25 or down 7% from Friday close
  • Level 2: 2,358.59 or down 13% from Friday close
  • Level 3: 2,168.82 or down 20% from Friday close
If anything else, also keep an eye out on the key trendline support that stretches back all the way to 2009, currently near the 2,500 level. Clearly, this did not age very well:
SPX Trump

Don't Be Fooled By Stock Market Noise

  • The volume of market and economic information is increasing exponentially, but the amount of useful information certainly isn’t.
  • Most of it is just noise, and the noise is increasing faster than the signal; hence, the higher the noise-to-signal ratio.
  • The “signal” is the truth and needs to be taken seriously; the “noise” is what distracts us from the truth and needs to be ignored.
  • This is why the higher the noise-to-signal ratio, the more difficult it becomes to make intelligent investment decisions.
  • Investors must use “filters” to separate the signal from the noise – this will improve their decision-making and investment performance.
 

 

Feedback in Real Life

FEEDBACKIf market or individual stock a has a positive predictive correlation with market b, and b had a positive predictive correlation with market a, then there is positive feedback, and an explosive growth when a is up would occur. Similarly, if there is a positive predictive correlation, i.e. the serial correlation of a with b say one day forward is 0.2, then market a goes down. If there is a negative predictive correlation of market a with market b, then when a goes up, b will tend to go down, and vice versa, and there will be a stable equilibrium between the two with each pulling the other in opposite directions.

The situation is very similar to what occurs in all feedback circuits in electronics, including what you seen in any kind of amplifiers where there is negative feedback to maintain stability.

What are the markets that have positive predictive correlation with each other, i.e. when a is up today, b tends to go up tomorrow, and when b is up today, a tends to go up tomorrow? There aren’t many. And when such occurs, it is only for a limited time. So you have to be on your toes if you wish to use positive feedback. All this can be quantified with varying degrees of reality and rigor.