Intermarket Analysis

One of the basic premises of the technical approach is that the price action in each market (and each stock) is also a leading indicator of its own fundamentals. In that sense, chart analysis is just a shortcut form of economic and fundamental analysis. This is also why the intermarket analyst uses charts.

From 1971 to 1980, the Commodity Research Bureau (CRB) Index—which is a basket of commodity prices—appreciated in value by 250 percent. Bond yields rose by 150 percent during the same period and, as a result, bond prices declined.

Warnings came from sector rotations out of late expansion stocks into early contraction stocks.

Gold’s historic role has been as a store of value during times of economic upheaval.

there has usually been a fairly close correlation between bond prices and the AD line.

Ratio analysis provides a useful technical tool for spotting trend changes in these intermarket relationships.

Relatively high interest rates in Australia and Canada resulted in high-yield currencies that attracted foreign capital. Their relatively high interest rates were due largely to rising commodity prices.

This means that the continuation of the current housing boom may be heavily dependent on interest rates staying low.

As a rule of thumb, consumer staples are closely tied to bond prices; cyclical stocks are closely tied to commodity prices.