Intermarket Analysis

Intermarket analysis plays a very important role in the investment evaluation and decision of commodities, bonds, currencies and equities. As all four markets are interrelated, a complete analysis of any single market requires an understanding of the links between the other three markets.
The 16 important intermarket principles are:
  1. The four main sectors are currencies, commodities, bonds and equities.
  2. The US dollar usually trends in the opposite direction of the CRB index and Gold.
  3. A falling US Dollar is normally inflationary and a rising Dollar is normally noninflationary.
  4. Gold leads the commodities (CRB index).
  5. The CRB index normally leads and moves in the same direction as bond prices and the opposite direction of stocks.
  6. A rising CRB Index is normally inflationary and a falling Index is deflationary.
  7. Bond yields normally lead and move in the same direction as the stock market.
  8. A falling bond market is normally bullish for equities and a rising bond market is normally bearish for equities.
  9. The Dow Utilities index normally follows the bond yields and leads the stock market.
  10. The US stock and bond markets are linked to the major global markets.
  11. Certain stock groups (auto manufacturing, savings and loans, security brokerage firms and interest sensitive stocks) normally lead the stock market.
  12. Gold and oil stocks normally lead the direction of inflation.
  13. All markets are interrelated and none move in isolation.
  14. During a deflation (which is quite rare), equities fall while bond prices rise.
  15. A rising Dollar is good for equities.
  16. A weak Dollar favours large multinationals.