Stock Market Synchronization: A Follow-Up
July 12, 2008
| Monday | Tuesday | Wednesday | Thursday | Friday | |
| DJIA | -0.5% | +1.4% | -2.1% | +0.7% | -1.1% |
| Nikkei | +0.9% | -2.4% | +0.1% | +0.1% | -0.2% |
| Dax | +2.0% | -1.4% | +1.3% | -1.3% | -2.4% |
My post of July 10th noted two patterns during the first three days of this past week. On each of those days, the direction of equity price moves had been opposite in the United States to the market movement in Japan and Germany. Secondly, in each of these markets, there had been a ping-pong pattern of directional reversals from day to day. I concluded that it seemed unlikely that either pattern would completely hold for the entire calendar week. The table below shows how Thursday and Friday unfolded. On Thursday, U.S. stocks moved in the same direction as Japanese stocks, and on Friday, U.S., Japanese and German stocks shared a common direction. Japanese stocks posted back-to-back tiny rises on Wednesday and Thursday, and German stocks did the same on Thursday and Friday. Among the three markets, only U.S. stocks had trend reversals on Tuesday-through-Friday of last week.
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What was striking from this corner was the fact that the Russell 2000 (up .67%) was positive on Friday as a result of a positive move of about 2.5% from 1:00 pm to the close. This contrasted to both the S&P 500 and the Nasdaq 100, which were down about -1.6% and -1.1% for the day. The curious tendency of the somewhat vulnerable Russell 2000 to outperform all other major indexes on the positive side in these very negative periods, (see July 8, Jan 23 and Jan 16, for example) is a curious and tradable phenomenon. Especially anomalous is the similar performance of the Nasdaq Banking Index which was also positive yesterday as well as on the other dates cited, positive when other indexes were either negative or significantly underperformed these two indexes. It should be noted that the Nasdaq Banking Index has had a singularly miserable performance from the market high in October of down about 35%.