The S&P 500 and Hang Seng Index have experienced a similar path lately.
The S&P 500 sometimes correlates well with other indices, but lately has found its rises and falls matched by the Hang Seng Index. No other major national index matches up as well with the S&P 500 like the Hang Seng lately. It’s not just a one month trend, this has been happening since December 2017. There has been a fade in the relationship between the two, but it is stronger than any other relationship that the S&P 500 shares.
On a daily chart, the S&P 500 and Hang Seng Index have largely matched movements and patterns. One has even been a leading indicator for the other at times. What is very evident is that while the rise in 2017 matched well, the triangle pattern (appearing to be a descending triangle) in 2018 is even more similar. Patterns matching up and high correlation coefficients over a 2 month span are something to keep an eye on for investors.
Are there similar relationships with other indices?
The United Kingdom’s FTSE 100 does not match in terms of patterns. The upward trajectory of the S&P 500 does not reflect the path that the FTSE 100 took. The dips that the FTSE 100 took were not matched at any point by the S&P 500 with the exception of the January 2018 decline. The FTSE 100 was a leading indicator for the S&P 500, as the S&P 500 ready to reach new highs, the FTSE 100 was starting to tumble down.
The Nikkei and S&P 500 actually had a strong correlation during Q4 2017 and Q1 2018. Prior to this, there was a weak negative correlation between the two. The patterns did not necessarily match in the Q4 2017 as the Nikkei was exhibiting on a daily chart, an ascending triangle pattern and the S&P 500 was continuing a rally. The Nikkei’s January 2018 breakthrough came during the time of the S&P 500’s upward momentum and the Nikkei peaked a few days prior to the S&P 500’s peak. The fact that the decline took place at around the same time with similar magnitude and the following waves were similar in the fact that they had peaks at the same time and a modest up-turn in the beginning of Q2 2018 points points to obvious similarities. It ends there because the Nikkei did not have two waves with the second peak being higher than first.
The German DAX had more volatility than the S&P 500 and it is noticeable. The patterns are not the same at all, but like all equity indices, the shared bullish experience of Q3 and Q4 2017 along with the drop-off in Q1 2018 took place. How it got to this point differed greatly. Interestingly enough, when the DAX reaches its peak in Q1 2018, it just barely surpassed its peak from Q4 2017. This is definitely different from the S&P 500. The DAX pattern resembles the Nikkei more than the Hang Seng and S&P 500 in Q1 and Q2 2018.
In France, the CAC pretty much double topped like the DAX did. Yes, there are the same peaks and valleys in 2018 that fail to have the second peak in the wake of the late January decline exceed the first. However, there is a double bottom for the CAC that forms, as opposed to three lower troughs that form. While there may be strong correlations with the S&P 500, the patterns fail to match and much like the DAX there are periods of negative correlations.
Just examining the S&P 500 and Hang Seng Index daily charts, there are a common double bottom on the closes of the troughs in 2018. There are more gapping patterns on the Hang Seng Index, but they behaved similarly.
Using this recent trend may provide opportunities to make mean-reversion trades that have a recency bias to them. However, the obvious similarities between the Hang Seng Index and S&P 500 are reminders that despite differences, we live in a smaller world.