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 I have having some technical issues with formatting,

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The chart above is a regular one I show in this newsletter. It is a comparison of the US SP500 to the Aussie 500 (All Ords). I have commented before that the correlation between these two markets is close. Correlated markets or in this case stock market indices are ones that tend to follow each other closely, as these two do. So in short what happens over there happens here. Like it or lump it we follow the yanks.

Even though the US market has been outperforming the Aussie market, streaking above ours, the correlation between the two has remained intact for most of the last 12 months, but in the last few weeks the indices have diverged to a large degree. Seeing as good trading and investing is all about probability and risk control, what is a probable outcome for the two kissing cousins? I put forward 3 probabilities.

1/ The US market falls. I think a lot of people expect this. Expectations can be dangerous in trading. The market appears overbought, has been trending a long time, however strong trends can stay in place a long time, fooling many. 2/ The  divergence is a new paradigm for these two indices, and will continue. The correlation will break down and the Aussie market will continue to fall as the US rises. 3/ The Aussie market to a degree will play catch up and the long term trend of correlation will reassert itself. A couple of things could happen here. We could rally hard from an oversold position, or we could just start to climb steadily. The US market could track sideways for a while as it digests the recent rally, but does not fall much as we gain.

  What do YOU reckon? Whatever happens I am going with the probability the correlation returns to some degree. Some sort of catch up soon by our market appears very likely.

That’s all this week, short and sweet. As always there are more market comments on the website under the 52 week high page, so click below for details. Also, Peters Portfolio despite this weeks falls on the market has held on to its recent gains, rising slightly.

http://www.easysharetradingsystems.com.au/peters-portfolio.html

http://www.easysharetradingsystems.com.au/How-to-Trade/52-week-highs.html 

"I dont know where the stockmarket is going, but I will say this, that if it continues higher this will do more to stimulate

the economy than anything we have been talking about today or anything anybody was talking about."

Alan Greenspan

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