Intermarket Analysis

Discussion in 'Economics' started by privateisland, Jan 12, 2004.

  1. Hi, I wrote this for someone and I thought all of you here might also like it. Take it as a gift and as such please don't post negative responses (as it took some time to write). Well here it goes

    first the abbreviations
    Dx=US Dollar, CRB=commodity Research Bureau (its a commodity index to tell how metals, grains, meats energy and tropicals are doing. Metals most important weight of index)
    BY= Bond yield, TB= T Bond, S=Stocks and DJ= Dow Jones.
    IR= Interest rates

    1. Overall idea-DX down, CRB goes up, BY goes up then TB goes down and stocks go down.
    Then if DX goes up, CRB goes down and BY goes down and TB goes up and Stocks go up

    2. CRB tells us where inflation is heading, which influences TB and IR.

    3.DX trades inverse to CRB and gold. The DX is least precise and most difficult to pinpoint it's movement

    4. The link between CRB and TB is the MOST IMPORTANT. It's the fulcrum of all other relationships.

    5.If CRB goes up then inflation will go up (things more expensive) and then the interest rates will go up.

    6. Bond prices and BY are opposite and inverse. The BY acts similar to the CRB.

    7.Economic expansion will make raw materials demand go up, so CRB goes up. Feds fear inflation so they raise the IR to combat it. Finally it chokes off the economic expansion which leads to economic slow down. Recession follows. During this time demand for raw materials and the DX decrease. This lowers the CRB and the IR.

    8. short term IR (90 days), TB and Eurodollar should trend same way.

    9.CRB leads BY by average of 4 months

    10. Bonds lead or tie stocks.

    11.Feds raise discount rate 3 times in a row=bear should follow. If they lower 3 times in a row bull should follow.

    12. Bond can fall and take stocks with it. But, can't always take it up with it.

    13.DX affects TB and DJ after it affects CRB 1st.

    14. DX affects gold instantly. Then gold trickles into remaining CRB. DX and gold inverse.

    15.Foreign currencies should all trend in same directions as gold.

    16. Gold leads turns in the CRB by 4 months on average. DJ and DX can be opposite for a long time.

    17.Gold does not react to inflation. It usually anticipates inflation.

    Hope you guys can use this. I took it off my study of one of John Murphy's books. I think #1 and 7 are the most important to remember. Excuse my grammar as these were only notes and not a thesis. I personally do not trade off of these because I don't like economics and I don't think people can be predicted as well as just waiting and reacting. I do remember these and keep them in note to see if the economy is healthy. I also look at volume to see how much pressure there is at key levels of support and resistance. But, I trade intraday swings and it's a little different. So to you all
    please enjoy!
  2. sammy12


    Good info.

    I was wondering why this thread has been explored more?

  3. Great post

    I use similar analysis in my trading on longer timeframe charts.

    The best indicators in my opinion are related markets and their interactions.

    I monitor the S&P, Nas, Russell and Dow, EOD and intra day regularly for patterns of strengths and weakness.

    It's been a great asset to my successful trades. :)
  4. I found out that John Murphy just re-wrote the intermarket analysis book this year. I'm going to have to get it and re-read it. It was one of the best trading books I've read (for understanding market correlations).
  5. Please post the link when you find it, as I would be interested in it as well.

  6. cashonly

    cashonly Bright Trading, LLC

    When I started trading in 98, there was an INVERSE relationship between bonds and stocks... bonds went up, stocks went down and vice-versa. Since then, I've noticed the move to the relationship you describe (but not always) Why do you think it is different now?

  7. This is a direct result of government intervention ( Interest Rates) and how the government can control markets !!!