Technical Analysis Plain and Simple: Charting the Markets in Your Language, Second Edition

The Major Markets

Now take a look at some of the more common intermarket relationships followed today. Figure 17.1 shows the U.S. stock and bond markets leading into the “crash” of 1987. In the beginning of the chart, the two markets moved up and down together. Note that the bond trend was broken a few weeks before the stock trend in March. Bonds also led the stock breakout to the upside in June.

Figure 17.1. U.S. stocks and bonds

In July, bonds began to fall again, but this time, stocks did not. The farther the two markets diverged, the more violent the eventual correction would have to be. On the day of the “crash,” not only did stocks plummet, ...