Trading with Intermarket Analysis

CHAPTER 7

Visual Analysis of the 2007 Market Top

This chapter combines intermarket principles with traditional charting to demonstrate how they worked together to warn that the stock market was peaking during 2007. The S&P 500 was testing important resistance at its 2000 peak. Traditional breadth measures started to break down. Small caps, financials, retailers, and transports turned down first. Rising oil prices were part of the problem. Rising oil and falling homebuilding hurt the performance of retail stocks. The 2006 downturn in housing stocks was clearly evident on chart.

■ Combining Traditional Charting with Intermarket Warnings

The stock market top that started in 2007 led to a financial meltdown the following year that threatened to bring down the global financial system. For the first time in most people’s lives, fears were being openly expressed that the global economy might be headed into another depression reminiscent of the 1930s. Because it was such an important financial and historical event, we’re going to study the 2007 top in more detail in this chapter. To do that properly, however, it’s necessary to blend intermarket warning signs that were clearly visible with some traditional charting. And, believe me, there were plenty of warning signs there as well.

JOHN’S TIPS

It’s always a good idea to combine traditional charting techniques with intermarket analysis.

My 2009 book, The Visual Investor, Second Edition (Wiley Trading) covered the 2007 top very extensively ...