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Market crash scenarios, and correlation between AUDJPY and S&P500

For market observers, it is well known fact that AUDJPY and S&P500 have quite high correlation.

Here is the chart from Yahoo, and high correlation started somewhere around 2003 as far as my rough visual observation goes.

There is no guarantee it will be this way in the future, so we have to be careful in using this “temporary” fact.

The readers of this blog know that I’m very bearish AUDJPY. And in my experience, Elliott wave principle saved me from losing money even more than helping me to make money. Here is the recent example in gold market.

Elliott wave practitioner like Robert Prechter even go so far as to say,

The Dow, which now stands at 9,686.48, is likely to fall well below 1,000 over perhaps five or six years as a grand market cycle comes to an end, he said. That unraveling, combined with a depression and deflation, will make anyone holding cash “extremely grateful for their prudence.

I’m an ordinal being, and still (and probably never) convinced that the market crash will go down such a monster cliff that Ralph J. Acampora would describe as

I don’t want to agree with him, because if he’s right, we’ve basically got to go to the mountains with a gun and some soup cans, because it’s all over.

in the same New York Times article.

Still, I think my view is categorized into super bears compared to the median’s view.

I’m keeping the majority of my 401k and Roth IRA as the cash equivalent position until I change this view.

I had time to trace the A-B-C zigzag correction scenario to S&P500 chart with logarithmic scale. The bottom of C wave in this case points to 550:

Robert Prechter: Significant Fall Coming, 2008 Just A Warm Up! (CNBC, 11/4)

Robert Prechter of course is Mr. Elliott Wave. And he is bearish on stock, commodity, and real estate, and bullish on dollar and treasury bills:

$ZAR Tokyo Financial Exchange

On Friday, many of Japanese Forex traders were shocked to see the
sudden drop of ZARJPY, or the exchange rate of South African Rand
against Japanese Yen.

The ZARJPY rate from the Forex market run by Tokyo Financial Exchange,
called “Click 365″, opened at 11.810, marked the high of 11.905. All
of the sudden it dropped by almost 28% or 8.415, and closed at 8.435.
This 3395 pips drop caused some Forex brokers to liquidate their
clients’ long ZARJPY positions.

South African Rand did not fall that much against other major
currency, and ZARJPY’s huge drop was only observed in the Click 365
rate. There is no announcement from Click 365 so far on what caused
this drop. Some Forex brokers participating Click 365 market already
told customers that the rate is valid and they were going to make the
clearance of the liquidation on November 2 (Mon) with the rate.

Many individual traders in Japan who held long ZARJPY positions seem
to be confused and worried, some are blogging about it, some are
seeking an answer (or comfort?) on Yahoo! Chiebukuro (Japanese version
of Yahoo! Answers) and some are twittering on Twitter.

Tokyo Financial Exchange Fines Commerzbank in Rand-Pricing Case
Bloomberg on December 21, 2009

Rand Pares Loss After Steepest Intraday Decline in One Year
Bloomberg on Nov. 2, 2009

Real time trading tweets

The plan in the article may get rejected any time, so please check out my tweets on Twitter.

Current risk exposure:

Rational Move always use stop loss orders, and this is the worse case potential loss over the capital for the currently open positions. This is unrealized loss is less or equal to the risk exposure.

Capital growth

From recent 100 trades (%) The growth right before the 1st trade is set to 0%.
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From recent 100 trades (%)
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Total returns

Since inception
(Aug 10, 2009)
Year-to-date Quarter-to-date
0% 0% 0%
This is a normalized value: the return on each trade is normalized against the capital just before the trade execution. This way, it is eliminating the effect by the capital change from deposits and withdrawals. The calculation thus reflects the trading performance of each trade. The value does not contain unrealized profits and losses. RM's trading strategy never risks more than 5% of the present capital. Not including subtraction by tax.

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