The Spearman Study is a lower oscillating indicator that ranges from -100 to 100. This figure is really a correlation coefficient used to determine oversold and overbought conditions in a particular market. The coefficient is the correlation between the historic list of prices and a sorted list of the same prices. More importantly to the trading community however, the zero line is considered the trigger point when a trade could be put on.

The settings of this study are up to the discretion of the individual trader but normally the correlation coefficient is over a 10-day period, paired with a 3 period SMA. The 3 period SMA is used for a relative value in order to determine a if a turning point is upon us in the coefficient. Moreover, the relative state of being overbought or oversold is normally a value of plus or minus 80, but again this value is not set in stone.

The two charts below include the new study with the SPX. Courtesy of Bloomberg and Thinkorswim.

Fundamentals tend to drive the market in the long run, but trading and the short-term future of the stock market tend to be a function of emotion and shortsighted thought. The Spearman Study is another great indicator one can glance at to gain prospective of perhaps a turn in the market.

salerno.mark.a@gmail.com

Paper bought 10,000 DNR Sep 20 Calls for $0.53 (4.5 times usual volume) with stock at $17.83
Paper bought 575 SPWR May 20 Calls for $1.10 (2.3 times usual volume) with stock at $19.08
Paper bought 6,400 SNE Jun 19 Calls for $0.90 (4.7 times usual volume) with stock at $18.64
Paper bought 239 JKS Jun 8 Calls for $0.65 (4.8 times usual volume) with stock at $7.40
Paper bought 433 RDWR Sep 19.5 Calls for $0.25 (6.2 times usual volume) with stock at $15.29

Paper bought 10,990 TSL Jun 4.5 Puts for $0.19 (13.6 times usual volume) with stock at $5.75
Paper bought 6,400 SNE Jun 19 Calls for $0.90 (4.7 times usual volume) with stock at $18.64
Paper bought 999 AGNC Jan 32 Calls for $0.59 (2.3 times usual volume) with stock at $29.02
Paper bought 575 SPWR May 20 Calls for $1.10 (2.3 times usual volume) with stock at $19.08
Paper bought 10,000 DNR Sep 20 Calls for $0.53 (4.5 times usual volume) with stock at $17.83

Overlaying the charts can help one find patterns or test purported myths that Wall Street and media sources love to sell. This chart helps investors derive one’s own conclusion, without a media bias.

The second chart is simply the YTD of spot gold. The chart is rather bearish, with all of its moving averages above it and sloping down. On the other hand, before everyone gets all bearish in the short term, the dollar index looks like it got rejected from the $83.5 level, which may support the gold story.

All things considered, gold is a very controversial asset. The fundamental story of the Fed and other central banks printing billions a month supports the story, but price has said other things as of late. Bull or bear, one should always keep a keen eye on the charts.

salerno.mark.a@gmail.com

While the market can stay irrational more than one can stay solvent, the Japanese situation seems to be unraveling as irrational markets fade away and fundamentals prevail. In recent news and market action, Japanese government borrowing rates have surged before and after market limit-ups. Additionally the USD/JPY currency pair broke out of a consolidating pattern to the upside. And finally other Asian countries have started to pursue an easing policy.

The chart below displays USD/JPY. Some may theorize that when there is a halt in JGB trading, investors turn to the currency market as a proxy to do their JGB selling. The idea behind this trade is that should the Japanese government pursue any more unconventional policy, investors will want US dollar as opposed to Yen (especially if they devalue).

The USD/JPY saw resistance at 100 for just about a month, now this level should provide solid support, but calling for a massive tide change can be dangerous.