Intermarket Technical Analysis: Trading Strategies for the Global Stock, Bond, Commodity, and Currency Markets

Intermarket Technical Analysis: Trading Strategies for the Global Stock, Bond, Commodity, and Currency Markets PDF In this guide to intermarket analysis, the author uses years of experience in technical analysis plus extensive charts to clearly demonstrate the interrelationshps that exist among the various market sectors and their importance.

Category: Stock

Author: JOHN J. MURPHY

Language: English

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Introduction

Trying to trade stock, bond, commodity and currency markets without intermarket awareness is like trying to drive a car without looking out the side and rear windows–very dangerous. In this guide to intermarket analysis, the author uses years of experience in technical analysis plus extensive charts to clearly demonstrate the interrelationshps that exist among the various market sectors and their importance. You’ll learn how to use activity in surrounding markets in the same way that most people employ traditional technical indicators for directional clues. Shows the analyst how to focus outward, rather than inward, to provide a more rational understanding of technical forces at work in the marketplace.

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Preface
Like that of most technical analysts, my analytical work for many years relied on traditional chart analysis supported by a host of internal technical indicators. About five years ago, however, my technical work took a different direction. As consulting editor for the Commodity Research Bureau (CRB), I spent a considerable amount of time analyzing the Commodity Research Bureau Futures Price Index, which measures the trend of commodity prices. I had always used the CRB Index in my analysis of commodity markets in much the same way that equity analysts used the Dow Jones
Industrial Average in their analysis of common stocks. However, I began to notice some interesting correlations with markets outside the commodity field, most notably the bond market, that piqued my interest.

The simple observation that commodity prices and bond yields trend in the same direction provided the initial insight that there was a lot more information to be got from our price charts, and that insight opened the door to my intermarket journey. As consultant to the New York Futures Exchange during the launching of a futures contract on the CRB Futures Price Index, my work began to focus on the relationship between commodities and stocks, since that exchange also trades a stock index futures contract. I had access to correlation studies being done between the various financial sectors: commodities, Treasury bonds, and stocks. The results of that research confirmed what I was seeing on my charts—namely, that commodities, bonds, and stocks are closely linked, and that a thorough analysis of one should include consideration of the other two. At a later date, I incorporated the dollar into my work because of its direct impact on the commodity markets and its indirect impact on bonds and stocks.

The turning point for me came in 1987. The dramatic market events of that year turned what was an interesting theory into cold reality. A collapse in the bond market during the spring, coinciding with an explosion in the commodity sector, set the stage for the stock market crash in the fall of that year. The interplay between the dollar, the commodity markets, bonds, and stocks during 1987 convinced me that intermarket analysis represented a critically important dimension to technical work that could no longer be ignored.

Another by-product of 1987 was my growing awareness of the importance of international markets as global stock markets rose and fell together that year. I noticed that activity in the global bond and stock markets often gave advance warnings of what our markets were up to. Another illustration of global forces at work was given at the start of 1990, when the collapse in the American bond market during the first quarter was foreshadowed by declines in the German, British, and Japanese markets.

The collapse in the Japanese stock market during the first quarter of 1990 also gave advance warning of the coming drop in other global equity markets, including our own, later that summer. This book is the result of my continuing research into the world of intermarket analysis. I hope the charts that are included will clearly demonstrate the interrelationships that exist among the various market sectors, and why it’s so important to be aware of those relationships. I believe the greatest contribution made by intermarket analysis is that it improves the technical analyst’s peripheral trading vision. Trying to trade the markets without intermarket awareness is like trying to drive a car without looking out the side and rear windows—in other words, it’s very dangerous.

The application of intermarket analysis extends into all markets everywhere on the globe. By turning the focus of the technical analyst outward instead of inward, intermarket analysis provides a more rational understanding of technical forces at work in the marketplace. It provides a more unified view of global market behavior.

Intermarket analysis uses activity in surrounding markets in much the same way that most of us have employed traditional technical indicators, that is, for directional clues. Intermarket analysis doesn’t replace other technical work, but simply adds another dimension to it. It also has some bearing on interest rate direction, inflation, Federal Reserve policy, economic analysis, and the business cycle.

The work presented in this book is a beginning rather than an end. There’s still a lot that remains to be done before we can fully understand how markets relate to one another. The intermarket principles described herein, while evident in most situations, are meant to be used as guidelines in market analysis, not as rigid or mechanical rules. Although the scope of intermarket analysis is broad, forcing us to stretch our imaginations and expand our vision, the potential benefit is well worth the extra effort. I’m excited about the prospects for intermarket analysis, and I hope you’ll agree after reading the following pages.

John J. Murphy
February 1991

Table of Contents- Intermarket Technical Analysis PDF

Preface v
1 A New Dimension in Technical Analysis 1
2 The 1987 Crash Revisited—an Intermarket Perspective 12
3 Commodity Prices and Bonds 20
4 Bonds Versus Stocks 40
5 Commodities and the U.S. Dollar 56
6 The Dollar Versus Interest Rates and Stocks 74
7 Commodity Indexes 95
8 International Markets 122
9 Stock Market Groups 149
10 The Dow Utilities as a Leading Indicator of Stocks 173
11 Relative-Strength Analysis of Commodities 186
12 Commodities and Asset Allocation 206
13 Intermarket Analysis and the Business Cycle 225
14 The Myth of Program Trading 240
15 A New Direction 253
Appendix 259
Glossary 273
Index 277

Reviews

” An in-depth look at market sectors and how they interact- In this book John Murphy explains the interactions of the four major market sectors mentioned in the book’s title. He structures his analyses around the concept of the business cycle, the recurring boom and bust loop which the economy has gone through over the past two centuries. Showing how the four major sectors (as well as other economic factors) interact in feedback loops to drive the business cycle, he gives us the information we need to see what stage of the cycle we’re currently experiencing and where we’re headed. Knowing this we can better decide where to park our assets in the short and medium-term future. His outline of the various stages of the business cycle is very helpful, even though it’s a rough guide. For instance, although gold does not seem to have played its assigned role in this scheme, it is clear that commodities did bottom in the third quarter of last year, signaling that a market top would follow in the not-too-distant future. Thus, even though the stock market is a dynamic system and cannot be exactly predicted, there are patterns that take a huge amount of guesswork out of charting one’s way through it. This book thoroughly explores those patterns and provides the investor/trader a solid support for making financial decisions.”- Ruth Henriquez Lyon

“Really insightful book. I learned a lot from this. Thank you to John Murphy for sharing this information. This copy is useful even after all these years.” – A. Larson

About the author

JOHN J. MURPHY has been the technical analyst for CNBC-TV for the past six years. He is the author of the bestselling Technical Analysis of the Futures Markets and Intermarket Technical Analysis. Mr. Murphy is President of MURPHYMORRIS, Inc. which was created to produce interactive educational products and services in the field of technical analysis. The website is www.murphymorris.com.

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