Technical Analysis Tips

– Dollar leads raw material prices

– Raw material prices lead interest rates (bond market)

– Bond market leads stock market

– Stock market leads US dollar

Bond prices lead stock prices, Stocks lead interest rates

Interest rate = the inverse of bond piece

Intermarket Analysis -----Cyclical (Business cycle 4-5 years)

Phase 1: bonds up, stocks down

Economy is weak, bonds do better than stocks

Phase 2: bonds up, stock up

Lower interest rates, stocks start to move up

Phase 3: Bonds down, stocks up

Economy is strengthening

Phase 4: higher interest rates cause concerns

Secular model, choose between industries in hard or soft assets

Cyclical model, choose industries gaining from strong markets

Commodity prices give much earlier warnings than the PPI or the CPI

Gold prices and the U.S. dollar have a strong inverse correlation

Bonds and stocks: rising bonds price will lead stock market bottoms. However, stock market declines usually lead bond market bottoms.

Bond and commodities: Rising commodity prices is an indication of inflation, which pushes interest rates higher and bond prices lower. Commodity price give much earlier warning than PPI and CPI.

Commodities and Dollar: A rising dollar has depressing impact on commodity process. A falling dollar is associated with rising commodity prices and rising inflation pressures. Gold prices and the U.S. dollar have a strong inverse correlation.

Stocks and Futures: When futures are selling far above the cash market, it indicates traders are “excessively” optimistic, i.e. a bearish signal. When futures are selling far below the cash market, it indicates traders are “excessively” pessimistic, i.e. a bullish signal.

Interest rate sensitive stock groups trend in the same direction as bond prices.

Inflation sensitive groups trend in the same direction as commodity prices.

Intermarket work builds on single-market analysis by incorporating the influence of related financial markets.

Relative strength is a measure...