Fundamental Analysis

The Permanent Importance Of Durable Goods | Trading Techniques

Trading Techniques
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Trading Techniques

Trading techniques of Forex are given bellow_

Traders are socialized into accepting what is and isn’t important. This task is sure to become more difficult as fewer entry-level positions are available at exchanges, banks and trading firms. Regardless, the urban legends of the community will persist as if transmitted through the ether. For example, is there a monthly report pooh-poohed with greater regularity than the one on durable goods? No, but caution is in order as well as a reminder he who poohs last poohs best.

The durable goods number is dismissed on account of its volatility. The arrogance of this assumption is breathtaking, considering economists’ track record in forecasting various monthly indicators (see “Working at employment,” June 2005) and that of those hurling the incentives. For traders in stocks, bonds and futures to call any economic series “volatile” is truly the pot calling the kettle black.

DURABLE RELATIONSHIPS

For long term investors, a population whose self-described membership rises and falls in accordance with unrealized equity, durable goods count. The linking variables between durable goods orders, the economy and the stock market include both long-term interest rates and the stability of the dollar.

This would all be fine and dandy in an academic sense alone, but there is something better for traders: Durable goods orders lead stock prices on the order of six months in advance. And, as is so often the case, we can distill useful information from those periods when the relationship between the stock market, as measured by the logarithm of the constant-dollar S&P 500, and durable goods, as measured by the logarithm of the constant-dollar total durable goods number, diverges.

Two points are noted in the longterm comparison between stocks and durable goods. The first is the start of the

system of fixed exchange rates at the end of the 1960s. The second is the September 1992 failure of exchange rate intervention in Europe. This latter episode is remembered best as George Soros breaking the Bank of England. This fiasco, which is estimated to have cost European taxpayers $60 billion so that their central banks could defend some arbitrary exchange rate band, did more to hasten the advent of the euro than any other event (see “The euro and the logic of money,” March 2005). Note the tight correlation between the S&P 500 and durable goods since the euro’s arrival on the scene at the start of 1999.

Why, you might ask, would the stability of the dollar affect the course of the stock market? The answer is deceptively simple.

Currency movements are determined by a single equation with three variables: the spot exchange rate and the two short-term interest rates of the countries whose currencies are involved.

Download and read this important ebook: importance of Durable Goods

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David Richard

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