Intermarket Analysis At Work…I Wasn’t Surprised By The Equity Rally

The US Equity Markets rose for a second straight day of pretty good gains.  Between Friday’s and Monday’s gains are the first consecutive 1% gains for the S&P 500 since Nov. 11, 2018.

Now what you heard in the news today was probably positive trade talks/comments by Trump, China lowering borrowing cost for companies, even Germany which I think is already in a recession, talking about adding some type of stimulus to their economy.  But we are talking about the move up that started on Friday.  

Instead of looking at financial markets or asset classes on an individual basis, intermarket analysis looks at several strongly correlated markets or asset classes, such as stocks, bonds and commodities. This type of analysis expands on simply looking at each individual market or asset in isolation by also looking at other markets or assets that have a strong relationship to the market or asset being considered.

Typically, when the economy is acting poorly, central bankers tend to lower interest rates to help stimulate growth. As interest rates go down, bond prices go up. On the flip side, when the economy is doing well, company profits are increasing, which leds to inflation, which causes interest rates rise to tame that inflation, which pushes bond prices down.

Let me sum it up, typically, there is an inverse correlation between stock and bond.  And bonds and interests rates are always inversely correlated.

OK, are you ready???

There was a reason why I saw the 10 yr bond interest rates going to 1.5% when I wrote about it on 8/4/19.

US Interest Rates Analysis Report 8/4/19 – Rates Will Continue To Go Down

That’s when I was anticipating the 10 yr bond hitting the monthly supply. 

Again, bonds and interests rates are always inversely correlated.

Again bonds and stocks are typically inversely correlated.  So as the bond market hit the monthly supply and pulled back, it’s the reason why equity markets have been moving up the last couple of days.

Whether you trade cryptos, equities, commodities…if you incorporate intermarket analysis into your trading, I guarantee you will see an improvement in your trading and equity curve.

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