T2W Trading Community

THESE RESULTS EXCLUDE THE OVERNIGHT TRADING SESSION

A 341 point advance (79.36% of the overall gain) in the Dow came when the price of crude was below its median score (7235).  In looking at the contrast between the two quarterly extremes, there was a substantive 256 point advance (59.59% of the overall gain) in the lower percentile, but a 208 point loss when the price of light sweet crude began trading the hourly session in the upper percentile. 

If you were able to accurately predict the hourly price of crude, how would this affect your decision to invest in the equities market?  Without considering the current price of crude, would you take an opposite trading position in the same hourly session?
This strategy can be seen below:

CRUDE-OIL HOURLY PRICE >0 = TAKING A LONG POSITION IN THE DOW

CRUDE-OIL HOURLY PRICE <0 = TAKING A SHORT POSITION IN THE DOW

CRUDE-OIL HOURLY PRICE =0 = TAKING NO POSITION IN THE DOW

The performance of this trading strategy can be seen on the hourly results of these two indicators on Sep 15, 2006.

(click to enlarge)

On September 15, the more logical strategy would have you buying as crude fell, but selling as it began rising in price.  With the exception of the 13:00 hour, the table confirms this strategy:  As crude fell in the opening two-hours of trading the Dow posted a 62 point gain; but as crude began rising throughout the day the Dow saw some profit taking.

Nevertheless, the results of 524 hourly sessions tell us a different story:

Certainly the findings are counterintuitive, especially when considering the strong inverse correlation.   The small percentage difference in an advancing or declining hourly session indicates that large price fluctuations are skewing our results.  Seen from this perspective, a more extensive analysis is required.   Apparently, we still have a long way to go in order to uncover the various interactions between these two indicators.  Watch for upcoming articles, but until then we have some suggestive facts to act upon.