It’s All about Relationships

Intermarket analysis is all about relationships. All of the charts included in this book are designed to show how closely related all financial markets are and, more importantly, how that information can be used to improve the forecasting process.

I hope I’ve succeeded in convincing you that intermarket analysis is also an increasingly important part of technical analysis. Correlations between the various financial markets over the past few years have gotten so strong that it’s nearly impossible to understand what’s happening in any one market without knowing what’s also happening in all of the other markets. The four main markets I’m referring to are bonds, stocks, commodities, and currencies. But it goes further than that. Intermarket analysis plays an important role in asset allocation and sector rotation strategies, both of which are tied to the business cycle. Exchange-traded funds (ETFs) have greatly facilitated the application of intermarket strategies and have made it much easier to keep track of everything.

The influence of foreign stocks also plays a crucial role in the U.S. stock market. Global stock markets are highly correlated. It’s dangerous to analyze the U.S. stock market without looking at trends in foreign markets. A financial crisis in the Eurozone has a ripple effect on the trend of the U.S. dollar, commodity prices, Treasury bonds, and the S&P 500. Trends in large emerging markets like Brazil and China also ...

Get Trading with Intermarket Analysis now with the O’Reilly learning platform.

O’Reilly members experience books, live events, courses curated by job role, and more from O’Reilly and nearly 200 top publishers.