Sincere thanks for the reply and your efforts in sharing the valuable and useful trading information.
Murray, don't these rules imply a leader/follower relationship with lag, where the intermarket is the leader and the traded market is the follower? Correlated markets are easy to find, but it's extremely difficult to establish a consistent leader/follower relationship. In fact, if you could find such a relationship then you'd be printing money. Can you please elaborate on how to qualify correlated markets for your strategy?
Let's look at the cases where we are looking at futures markets. In those cases the stock sector indexes for example utility stocks will lead bonds. The reason why is the large amounts of research in the equity markets causing their price action to lead the underlying commodities. Other type of relationships are due to fundemental analysis. One example is silver and bonds. We can use silver as a proxy for inflation and this nature makes it a leading indicator. The proof of all of this is in the eating, I have many intermarket based systems which have been profitable since the 1990's without even changing parameters. If a system works for 10 years or more without any changes, it would not be hard to say that my assumptions are not correct. In addition it does not have to alway be leading to work, it could just be out of sync and using a arbitrage effect we can forcast the market turning points. Intermarket analysis is also not perfect. This is why I do use correlation analysis as well as something I invented called predictive correlation to hande when these relationships go out of sync.
Murray, thanks for your comprehensive reply. For others following this thread, Murray describes "predictive correlation" in chapter 8 of his book, Cybernetic Trading Strategies, or you can find more info on this technique with a Google search.
Murray also has 2 other books well worth adding to any ones libary who is interested in this suject IMHA . Technology in Trading for the New Mellennium . Inside Advantage Back Issue Collection You can get both from his web site www. tradersstudo.com