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Please forgive me if this is the wrong place to post this.
I recently read John Murphy's "Intermarket Technical Analysis - Trading Strategies For The Global Stock, Bond, Commodity, And Currency Markets". I found it a very interesting topic, and even though it was written 20 years ago, it still appears to apply today.
I would like to get some assistance with inter-market analysis, or even "out source" it fully, freeing me to spend my limited time concentrating on what trades I'm going to make within the current inter-market picture. What resources would you recommend, paid or free, for inter-market analysis?
I did a trial subscription to Bob Hoye's Institutional Advisers newsletter, and it was pretty good. They start with the credit markets, and expand from there to develop their thesis. I'm considering subscribing, but I want to explore my options before making a commitment.
Any help you could give would be great. Thanks!
Can you help answer these questions from other members on NexusFi?
This question is impossible to answer the way you put it.
John Murphy wrote a great classic on intermarket analysis, but it just explains some of the basic concepts. To answer your question, anyone would need to know
- which instruments you intend to trade
- what timeframes you are looking at
Intermarket relationships are difficult to grasp, because once a positive correlation between two instruments is established, it can quickly revert to neutral or negative. So you cannot analyze any intermarket relationships without using filters, which are basically derived from sentiment indicators.
This is actually an extension of technical analysis. Instead of deriving an edge from price and volume alone, you introduce some additional variables that are - to some extent - independent from the first two ones. But this makes things more complex, as well.
So where lies your focus, what are your intentions?
I don't trade individual stocks, prefering index etfs and futures, but out side of that I'll trade just about anything: commodities, currencies, interest rates, equities. I like to look at everything, and keep an eye out for excellent setups. If I see one, I take it.
One of my favorite things to do is to find to things that have nice setups in the same direction, and then find a sector that marries them. In theory, this should improve the odds for success. For example, I'm currently projecting short term upward action in stocks AND commodities, with agricultural being particularly strong among the commodities. So I'm long the agricultural sector ETF PAGG.
Let's say, I was projecting stocks downward and interest rate yields up. I would then look to short interest rate sensitive sectors, like utilities. That sort of thing.
Where intermarket analysis came in for the PAGG play is The dollar appears to be bouncing off of major resistance at 89 and the euro off major support at 1.18. If the dollar corrects here, I would imagine that would be bullish for both stocks and commodities.
I know. This is why I want to out source this to a professional. I'm confident in my ability to do TA. I'm less confident in my ability to read when an intermarket relationship is working and when it's broken. I'm looking for some one who can tell me that.
I found "Afraid To Trade's Weekly Inter-Market Technical Report." I read the sample report for December 2009. There were many things I liked about it, but there was just one problem -> there was no inter-market analysis! The report was just technical analysis of various different markets. Outside of once or twice mentioning "these markets are correlated", there was no break down of how the markets effect each other, if the relationships are holding up, etc. While the technical analysis was actually pretty good, it was not what I was looking for. I'm perfectly capable of doing my own TA.
I just started a trial subscription with "Inter-Market Relationships Analysis." I read the first report this morning. It was much closer to what I'm looking for. I'll have to read a few more reports before I form a more complete opinion, but so far it does not appear to offer as clear and concise details on how to trade off of the information they provide as Bob Hoye does. It is pretty interesting though. I'll let you know how it goes.
Here's more on how I used inter-market analysis for this play:
While stocks corrected pretty strongly since late april, putting in a low (the flash crash) and then a lower low (down to 1050 on the S&P), corporate bonds have been much stronger. As measured by the ETF LQD, they did not put in a lower low, and the price is still very high on a long term chart. You have to go back 5 years before you start seeing highs that are significantly higher than LQD's current price. In other words, current corporate bond price is supportive of a move higher in stocks.
I also use relative strength strength analysis, as described by Murphy. Looking at the relative strength of the ratios pagg/spx and pagg/rji (I use the etf rji as my gauge of commodities in general), while pagg was putting in a double bottom, in both cases the ratios were putting in higher lows, were breaking above downward sloping trend lines, and breaking above moving averages of the ratio. In other words, relative strength was giving entry signals.
Finally China, which has been leading US markets of late, put in a higher low and higher high, suggesting that US equities should break out of their current trading range to the upside.
This sounds like a recipe for disaster. Intermarket relationships are really difficult to grasp, as the correlation changes all the time. The larger market participants have specialists dealing with intermarket relatiionships, and for sure they do not have equities-bond-agriculturals-energy-trade-everything-that-moves traders.
For me it is already extremely challenging, to understand and use intermarket relationships for a single commodity or contract.
Let us say I want to trade ES mini futures, and I believe that I should have additional information, not just price and volume, so I would think first about
- the underlying market -> Tick and TRIN
- the option market -> put/call ratio, ISEE, Vix
- other index futures (YM, NQ, TF)
- the dollar index (DX)
- interest rates (bonds)
- interbank rates (LIBOR) / TED-spread as a measure of risk aversion
But then, all this information should be contained in price, so some moving averages or regression indicators should confirm it.
To make money, I will stay in my niche. If I look at a greater number of markets, I will quickly be confused, as I cannot handle the information overload.
For day traders, I think you are 100% correct, but when you're working with longer time frames A) there isn't enough opportunity in just 1 market and B) there is a lot more time to look at every thing. You only get 1 new bar every week on a weekly chart, after all. I know I said swing time frame, but only my losers are over after just a few days. Most of my winners last 1 to 3 months.
There are many successful traders who traded more or less everything, for example the Turtles.
There is more that I could say on the subject, but I will leave it at that. The purpose of the thread is not the number of markets I trade, but useful resources for inter market analysis. If you can provide that, I will be grateful.
I've been enjoying my free trial from Inter-Market Relationships Analysis. They definitely look at a ton of relationships, showing you what is currently working. This includes many relationships that I've not seen anyone else talk about, for example Copper plus Crude is positively correlated to the peso times the real. The idea being if copper and crude start falling off, then money exits latin themes, and vice versa if those commodities take off.
While I find IMRA's letter extremely interesting to read, and if you're into this sort of thing, you owe it to yourself to get a free trial (What have you got to lose?), I haven't found the information they provide to be very tradable. They are extremely focused on the relationships, and make almost no effort to point out good opportunities that the relationships setup. Institutional Advisers newsletter, while not as intently focused on inter-market analysis, seems like a more "complete" service to me. IMRA will say "Here is an inter-market relationship." They may tell you why there is a relationship between these markets, but that is it. They just point out the relationships and show you a chart. Institutional Advisers will say "Here is an inter-market relationship. And we think that sets up for a nice long play in the copper market. Profit target is X. Put your stop at Y." The advice is MUCH more tradable, and thus more useful.
I also like that Institutional Advisers is more focused on what they know. IMRA seems like it is all over the place. Literally every day they are monitoring new relationships. IA sticks to their bread and butter: the credit markets, gold/silver ratio, and one or two other key relationships, and they form their thesis from there.
Next up is Louise Yamada's Technical Research Advisors. I'm not sure how much inter-market analysis they do, but I've always been a fan of hers and figured it can't hurt to check out her service.
