If we compare the US Dollar Index (USDX), an index that tracks the value of the U.S. dollar against six other major currencies, and the value of the Dow Jones Industrial Average (DJIA), Nasdaq and S&P 500 over a 20-year period, the correlation coefficient calculated for the USDX versus the DJIA, Nasdaq and S&P 500, is 0.35, 0.39 and 0.38, respectively. Note that all of the coefficients are positive, which means that as the value of the U.S. dollar increases, so do the stock indexes, but only by a certain amount. Notice also that each coefficient is below 0.4, which means that only about 35% to 40% of the stock indexes’ movements are associated with the movement of the U.S. dollar.<\/em><\/p>\n Okay, so every one of the factors I mentioned that drive the markets (specifically the Dow Jones Industrial Average for our purposes) has a correlation value, and that correlation can be positive (meaning when one goes up, the other goes up, too), and negative (when one goes up, the other goes down). The correlation will be between -1.00 (perfect negatively correlated) and +1.00 (perfect positively correlated).<\/p>\n <\/p>\n \u201cThe Dow Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange and the Nasdaq. The DJIA was invented by Charles Dow back in 1896.\u201d http:\/\/www.investopedia.com\/terms\/d\/djia.asp<\/a><\/p>\n Note that just because Tom, Dick, and Harry all look at the DJIA to gauge the condition of the economy doesn\u2019t mean its right to do so. Personally, I can\u2019t stand the DJIA, and many economists might say the same thing. We\u2019re currently at record highs on that index, and yet more young people have stopped looking for jobs.<\/p>\n The system is corrupt to the core and there is market manipulation happening, which is even acknowledged by the mainstream. So why are even talking about the DJIA? Because no matter the level of manipulation, no matter the corruption, no matter the new Fed policies, no matter Washington\u2019s attempts at saving the system through fiscal policy (yawn), dreams can see through the smokescreen, and it just so happens that the DJIA is what it apparently sees best!<\/strong> <\/em>We\u2019ll get to all that in a minute.<\/p>\n <\/p>\n The best correlations can be easily seen between indexes, like the DJIA and the S&P 500. That correlation is well above 0.9, meaning that when one goes up a certain percentage, the other invariably goes up a very similar percentage amount.<\/p>\n However, there\u2019s a big whopping \u201cwho cares<\/strong><\/span>\u201d in here because of several items that the mainstream stock pickers don\u2019t seem to want to tell the meek people or those just learning the trade. That is, who cares if they are correlated at all? As the dollar strengthens, the market increases? Who cares? In order to make this trade successful, you will have to guess at where the dollar is going.<\/p>\n Another example: Since the DJIA is so highly correlated with the S&P 500, if I know where the S&P 500 is going, then I\u2019ll know almost guaranteed where the DJIA is headed, and I can choose to place a trade on both of them! Hey make double the money!!<\/p>\n Ooops, almost forgot\u2026WHO CARES?!<\/strong><\/span> How the heck are you going to figure out where the S&P 500 is going to begin with? The correlation between the two is super high, but it doesn\u2019t get us anywhere. One doesn\u2019t predict the other. The two indexes move together, which isn’t very helpful for a trader who’s trying to determine whether the markets are going up or down in the future.<\/p>\n In order to make a better trade today, you don\u2019t want a correlation value that is concurrent with today\u2019s numbers. You\u2019d rather have something that\u2019s correlated to the DJIA for SOME TIME IN THE FUTURE. Let\u2019s look at an example, and this is purely hypothetical, in order to illustrate the point here.<\/p>\n Okay, the green line is just some random company, and for simplicity sake, let\u2019s just say it\u2019s Walmart. The red line is the gold standard for stock index numbers, the DJIA. The black line represents a hypothetical trace of the S&P 500.<\/p>\n Notice that the red and black lines look almost identical, with just some slight variance. However, look at the green line. It isn\u2019t exact, but the green line does tend to LEAD the DJIA and the S&P 500. In our example, when Walmart plummeted, the DJIA plummeted, too, just days later.<\/p>\n So, let me ask you a question: If you are making a trade on future DJIA movements (i.e., placing a bet on where the red line will go), would you rather use the black line or the green line? This is somewhat of a trick question. The black line looks more accurate than the green line, but I promise you if make your trade for the red line as the black line is plummeting, it will be too late. You can’t succeed in that manner. You need to know AHEAD OF TIME whether the red line will go up or down in order to be successful.<\/p>\n Therefore, yes, the GREEN line is predictive, and although it is not perfect, it does seem to capture what the red line and black line are going to do.<\/p>\n Simple enough, right? Just find a company like our walmart example and place bets on where you see it go. If it\u2019s correlated high enough, you be relatively confident that when your predictive company goes up, the DJIA will go up shortly thereafter, and you load up on stocks in the DJIA.<\/p>\n Just one minor problem: that type of company in our example doesn\u2019t exist. In general, if the company\u2019s chart pattern is correlated to the bigger DJIA, it will almost always be correlated with zero time difference. Thus, there is no actual green line company in existence.<\/p>\n This is exactly what the big wigs at Wall Street, the hedge funds, the big investment banks are all doing\u2026.trying to find that that golden line that has a high correlation to the FUTURE stock prices. There are technical traders, fundamental traders, stock screeners, and many other forms of dart throwing out there.<\/p>\n In the real world, if someone finds an algorithm that exceeds 60% reliability to future market trends, then they are doing pretty good, but if they are able to find something above 70% success rate, that is rare and the person is really doing well, especially if the screening program continues to hold true over time (which it rarely does).<\/p>\n But what if there was a predictive line out there that:<\/p>\n – is much greater than 70% reliable at predicting major market trends<\/p>\n – has an event horizon of days and weeks (selectable)<\/p>\n – looks at ZERO stocks and\/or economic data (and thus is impervious to stock market corruption and market manipulation)<\/p>\n – and is powered by dreams\u2026<\/p>\n Too far fetched? Wouldn\u2019t this be called a utopian fantasy? And aren\u2019t utopias just a figment of our imagination? And aren\u2019t dreams just total hogwash, especially when it comes to predicting things?<\/p>\n Well, then, how about I just give you the data, and you can either believe or not believe? Alright, we\u2019ll do just that in the next installment. By the way, it is our work here that George Ure was attempting to articulate in one of his articles last week, when the NDC was highlighted over there at Urbabsurvival.com<\/a>.<\/p>\n In Part II, due out as early as tomorrow (but don\u2019t hold me to it), we\u2019ll get into a lot more details about what the NDC stumbled upon that connects dreams and the economy. And for those who do value dreams, please prepare to be absolutely floored. And for those who could care less about dreams, prepare to be equally surprised.<\/p>\n <\/p>\n …for they shall inherit the Earth\u2026.\u201d<\/p>\n <\/p>\nAn Aside<\/h1>\n
A Return to Correlation<\/h1>\n
<\/h1>\n
The Key: Predictive Correlations<\/h1>\n
![\"walmart](\"http:\/\/nationaldreamcenter.com\/wp\/wp-content\/uploads\/2014\/11\/walmart-example1.jpg\")
<\/a><\/p>\n<\/h1>\n
All we have to do, then\u2026<\/h1>\n
\u201cBlessed Are the Meek\u2026<\/h1>\n