By John J. Murphy
Attempting to alternate inventory, bond, commodity and forex markets with no intermarket knowledge is like attempting to force a vehicle with no looking the aspect and rear windows--very harmful. during this consultant to intermarket research, the writer makes use of years of expertise in technical research plus large charts to obviously exhibit the interrelationshps that exist one of the numerous industry sectors and their value. you will easy methods to use task in surrounding markets within the related manner that the majority humans hire conventional technical signs for directional clues. indicates the analyst find out how to concentration outward, instead of inward, to supply a extra rational knowing of technical forces at paintings on the market.
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Extra info for Intermarket technical analysis: trading strategies for the global stock, bond, commodity, and currency markets
Sample text
The 1970s witnessed virtual explosions in the commodity markets, which led to spiraling inflation and rising interest rates. From 1971 to 1980 the CRB Index appreciated in value by approximately 250 percent. During that same period of time bond yields appreciated by about 150 percent. In November of 1980, however a collapse in the CRB Index signaled the end of the inflationary spiral and began the disinflationary period of the 1980s. ). Long-term bond rates continued to rise into the middle of 1981 before finally peaking in September of that year MARKET HISTORY IN THE 1980s 23 The 1970s had been characterized by rising commodity prices and a weak bond market.
Bond and stock prices are both influenced by the dollar. However, the dollar's impact on bonds and stocks comes through the commodity sector. Movements in the dollar influence commodity prices. Commodity prices influence bonds, which then influence stocks. The key relationship that binds all four sectors together is the link between bonds and commodities. To understand why this is the case brings us to the critical question of inflation. THE KEY IS INFLATION The reason commodity prices are so important is because of their role as a leading indicator of inflation.
The falling ratio line signaled that inflation pressures were waning even more, which was bearish for commodities, and that the pendulum was swinging toward the financial markets. Both bonds and stocks rallied strongly from that point. THE ROLE OF SHORT-TERM RATES near 100. At the same time the CRB Index had reached a major support level near 220. Those two events, occurring at the same time, suggested at the time that bonds were overbought and due for some weakness while the commodity markets were oversold and due for a bounce.