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Trading with Intermarket Analysis

Book Description

Praise for Trading with Intermarket Analysis

"John Murphy makes it absolutely clear that all markets are interrelated. It would be silly to trade stocks without keeping an eye on interest rates, currencies, and gold. In this valuable new book, the master of technical analysis teaches all of us how to monitor and profit from intermarket relationships."
—Dr. ALEXANDER ELDER, author of The New Trading for a Living,

"Murphy's basic premise is that a trader's analysis needs to extend beyond the market itself to also encompass interrelationships with other markets—a broader perspective that is essential not only in understanding the big picture but also in providing valuable early warning signs through lead-lag relationships. The best part of Trading with Intermarket Analysis is that these critical market interactions are vividly illustrated with more than 150 color charts, providing valuable food for thought not only for chartists but also fundamentalists, as an understanding of intermarket connections is essential for all traders. One lesson I have learned from interviewing market wizards is that intermarket price action provides essential trading clues. In this context, Murphy's book offers traders a valuable resource and idea repository."
—JACK SCHWAGER, author of Market Wizards and the Schwager on Futures book series

"In today's lightning-fast, interconnected global markets, savvy traders capitalize and profit on intermarket movements. Murphy's new book shows traders how to read the charts and understand intermarket dynamics in an easy-to-understand visual fashion. Learn how to utilize ETFs to trade and profit off these key market drivers. Long a friend to the community, Murphy once again shines with his latest must-read book for all traders."

Table of Contents

  1. Cover
  2. Half Title Page
  3. Title Page
  4. Copyright
  5. Dedication
  6. Contents
  7. Acknowledgments
  8. Introduction
  9. Part I: The Old Normal
    1. Chapter 1 Intermarket Analysis: The Study of Relationships
      1. All Markets Are Related
      2. Asset Allocation Strategies
      3. ETFs Have Revolutionized Intermarket Trading
      4. Sector Rotation and the Business Cycle
      5. Stocks Peak and Trough before the Economy
      6. The Role of Oil
      7. Advantages of Using Charts
      8. Viewing the Big Picture Is Important
      9. Intermarket Implications for Technical Analysis
      10. A New Dimension to Technical Work
      11. Intermarket Work Is an Evolutionary Step
      12. Why Relationships Change
      13. Intermarket Principles
      14. Review of the Old Normal
    2. Chapter 2: Review of the Old Normal
      1. 1980 Was a Key Turning Point
      2. The End of the Inflationary 1970s
      3. The 1987 Crash Reinforced Intermarket Trends
      4. The Two Iraq Wars
      5. The 1994 Stealth Bear Market Follows Intermarket Script
      6. Echoes from the 1930s
      7. The Japanese Bubble Bursts in 1990
    3. Chapter 3 The 1997–1998 Asian Currency Crisis
      1. The Asian Currency Crisis Starts in 1997
      2. Bonds and Stocks Start to Decouple
      3. 1997 and 1998 Were Only a Dress Rehearsal
      4. Intermarket Lessons of 1997 and 1998
      5. The Asian Effect Overrides the Fed
      6. Two Deflationary Events of the 1990s
      7. Deflationary Effect on Bond Yields
      8. Japanese Deflation and U.S. Interest Rates
      9. Summary
  10. Part II: The 2000 and 2007 Tops
    1. Chapter 4: Intermarket Events Surrounding the 2000 Top
      1. Events Leading up to the 2000 Top
      2. Crude Oil Triples in Price
      3. A Rise in Short-Term Rates Leads to an Inverted Yield Curve
      4. REITs Benefit from Falling Stocks
      5. Consumer Staples Start to Outperform
      6. Market Lessons from 2000
      7. Bonds, Stocks, and Commodities Peaked in the Proper Order
      8. The 2002 and 2003 Bottoms Reverse Normal Order
      9. The Fed Discovers Deflation during 2003
      10. Commodities Turn Up during 2002
    2. Chapter 5: The 2002 Falling Dollar Boosts Commodities
      1. Commodities Inflate
      2. Commodities Gain from Battle against Deflation
      3. The Dollar Drop Leads to a New Bull Market in Gold
      4. Falling Stocks Are Also Good for Gold
      5. Not a Lot of Alternatives
      6. Gold and the Dollar Experience Major Trend Changes
      7. Shifting from Paper to Hard Assets
      8. The Stock Peak Coincides with Gold Bottom
      9. Gold Breaks 15-Year Resistance Line
      10. Stocks End Secular Uptrend
      11. Gold Outperforms Stocks for the First Time in 20 Years
      12. The Oil Peak Coincides with the 2003 Stock Bottom
    3. Chapter 6: Asset Allocation Rotations Leading to 2007 Top
      1. Relative Strength between Asset Classes
      2. Asset Allocation
      3. 2002 Shift from Paper to Hard Assets
      4. The Commodity/Bond Ratio Also Turned Up
      5. Turns in the Bond/Stock Ratio
      6. The 2007 Bond/Stock Ratio Shifts Back to Bonds
      7. Bonds Rise as Stocks Fall During 2007
      8. Falling U.S. Rates Hurt the Dollar
      9. The Falling Dollar Pushes Gold to a Record High
      10. The Three Markets Peaked in the Right Order
      11. No Such Thing as Global Decoupling
    4. Chapter 7: Visual Analysis of the 2007 Market Top
      1. Combining Traditional Charting with Intermarket Warnings
      2. The NYSE Advance-Decline Line Shows Negative Divergence
      3. What Caused the Divergence?
      4. Rising Oil Hurts Transportation Stocks
      5. The Dow Theory
      6. Consumers Are Also Squeezed by Rising Oil
      7. Retailers and Homebuilders Were Linked
      8. Retail Stocks Start to Underperform Long before 2007
      9. The 2005 Homebuilding Top Gave Early Warning
      10. Another Bearish Warning During 2007
      11. Why Breadth Measures Work
      12. Summary
  11. Part III: The Business Cycle and ETFs
    1. Chapter 8: Intermarket Analysis and the Business Cycle
      1. The Four-Year Business Cycle
      2. The Presidential Cycle
      3. The Business Cycle Explains Intermarket Rotation
      4. Lessons from 2000 and 2007
      5. Oil Leads to Higher Rates from 2004 to 2006
      6. The 2001 Fed Easings Didn’t Work
      7. Comparisons to the 1920s and 1930s
      8. Rotating Asset Classes over Decades
      9. Lessons of Long Cycles
      10. The Kondratieff Wave
      11. Dividing a Lifetime Cycle into Seasons
      12. Housing Is Interest Rate Sensitive
      13. Real Estate Doesn’t Always Follow Rates
      14. Real Estate Doesn’t Always Follow Inflation
      15. The 18-Year Real Estate Cycle
      16. The Real Estate Peak Was Overdue
      17. Economic Cycles Set the Framework for Intermarket Work
    2. Chapter 9: The Impact of the Business Cycle on Market Sectors
      1. Sector Rotation within the Business Cycle
      2. Sector Rotations during 2000 Favored Contraction
      3. Sector Rotations during 2003 Favored Expansion
      4. Technology Leadership Is Another Good Sign
      5. Smaller Stocks Lead at Bottoms
      6. Transportation Leadership
      7. 2007 Sector Rotation Showed Weakness
      8. Sector Rotation Has Two Sides
      9. It’s Also a Market of Groups
      10. The Difference between Sectors and Industry Groups
      11. Sector Rotation Model
      12. Sector Rotations during 2007
      13. Industry Group Leadership
      14. Sector Rotations Turn Positive in 2009
      15. Sector Trends Need to Be Monitored
      16. 2011 Rotations Follow Sector Rotation Model
      17. Performance Bars
      18. Using Sector Carpets to Find Leading Stocks
      19. Comparing Absolute and Relative Performance
      20. Sectors Are an Important Part of Intermarket Work
      21. The Emergence of Exchange-Traded Funds
    3. Chapter 10: Exchange-Traded Funds
      1. Mutual Funds versus ETFs
      2. Top ETF Providers
      3. Stock Market ETFs
      4. Bond ETFs
      5. Commodity ETFs
      6. Currency ETFs
      7. Trading the Dollar
      8. Foreign ETFs
      9. Inverse and Leveraged ETFs
      10. Summary
  12. Part IV: The New Normal
    1. Chapter 11: The Dollar and Commodities Trend in Opposite Directions
      1. Both Markets Need to Be Analyzed Together
      2. The Rising Dollar Contributed to the 1997–1998 Commodity Collapse
      3. The Falling Dollar from 2002 to 2008 Pushed Commodities Higher
      4. The Dollar Bottom during 2008 Contributed to Commodity Plunge
      5. Dollar Peaks in 2009 and 2010 Lifted Commodities
      6. The Dollar Bottom in 2011 Pushed Commodities Lower
      7. Correlation Coefficient
      8. Gold Isn’t Like Other Commodities
      9. Commodities Are Linked to Foreign Currencies
      10. Gold Outperforms the Euro
      11. Gold Outpaces Other Commodities
      12. Gold versus Foreign Currencies
      13. The Dollar’s Impact on Other Intermarket Trends
    2. Chapter 12: Stocks and Commodities Become Highly Correlated
      1. Another Side Effect of the Deflationary Environment
      2. Commodities Lost Half Their Value in Just Six Months
      3. Stock and Commodities Became Closely Correlated after 2008
      4. Copper Influences Stock Market Direction
      5. The Silver/Gold Ratio Influences the Stock Market
      6. Silver Stocks Led Commodity Lower during 2011
      7. The Influence of Commodities on Sector Performance
      8. Commodities Led Stocks Lower during 2011
      9. The Commodity Peak Also Influenced Sector Rotations
      10. Gold Stocks versus Gold
      11. Gold Miners Are Stocks
      12. Gold Shares Underperform Bullion during 2011
      13. Gold and Miners Relink during July
      14. Dollar Direction Impacts Foreign Stocks
    3. Chapter 13: Stocks and the Dollar
      1. A Weak Historic Link between the Two
      2. A Long-Term Comparison of Stocks and the Dollar
      3. Stocks and the Dollar Become Negatively Correlated
      4. The Commodity Impact on the Dollar-Stock Link
      5. The Dollar Bottom during 2011 Hurts Stocks
      6. The Dollar Impact on Foreign Stocks
      7. Commodities Are Linked to Emerging Markets
      8. China Influences Copper Trend
      9. Chinese Stocks Influence the S&P 500
      10. Europe Is Also Important
      11. Currency Trends Impact Foreign ETFs More
      12. France iShares Hold 2010 Support
      13. EMU iShares Diverge from Euro
      14. EAFE and Emerging iShares Stabilize at End of 2011
      15. Don’t Forget about Canada
      16. The Canadian Dollar versus the Euro
      17. Canadian Markets and Commodities
      18. How to Add the Americas to Your Foreign Portfolio
    4. Chapter 14: The Link between Bonds and Stocks
      1. The Two Markets Compete for Investor Funds
      2. The Positive Correlation between Bond Yield and Stocks
      3. Bond Yield Leads Stocks Lower during 2010 and 2011
      4. The Falling Bond Yield Boosts Dividend-Paying Stocks
      5. Consumer Staples and Utilities Thrive on Rising Volatility
      6. Not All Bonds Are the Same
      7. Some Bond Prices Can Trend in Opposite Directions
      8. Quantitative Easing
      9. The Impact of Quantitative Easing on Bonds and Stocks
      10. Operation Twist
      11. The Yield Curve
      12. Thr Impact of Quantitative Easing on the Yield Curve
      13. Bond Yield and Stocks Diverge at the Start of 2012
      14. TIPS and Gold Rise Together
      15. The Pendulum Swings Back to Stocks at the Start of 2012
      16. The Fed Launches QE3
    5. Chapter 15: The Link between Bonds and Commodities
      1. One of the Traditional Relationships
      2. Bond and Commodity Prices Normally Trend in Opposite Directions
      3. The Inverse Bond-Commodity Link between 2003 and 2006
      4. Why They Changed during 2007
      5. Copper versus Corn during 2002
      6. A Comparison of Copper and Treasury Bond Prices
      7. The Copper Bottom during 2009 Contributed to the Bond Top
      8. The Thomson Reuters/Jefferies CRB Index
      9. The CRB Index/Treasury Bond Ratio
      10. The Commodity/Bond Ratio Since 2008
      11. The CRB/Bond Ratio Influences Stocks
      12. The History of Commodity/Bond Ratio Influence on Stocks
      13. The CRB/Bond Ratio Also Influences Sector Rotation
      14. The CRB/Bond Ratio also Influences Emerging Markets
      15. Commodity Inflation versus Bond Deflation
      16. Commodity and Bond Links to China and Japan
      17. Summary
  13. Conclusion
    1. Recap of Intermarket Principles
    2. The New Normal in Intermarket Relationships
    3. Fed Policy May Be Interfering with Normal Bond/Stock Relationship
    4. The Fed Also Kept Bond Yields Low during the 1940s
    5. Asset Allocation Strategies May Start Favoring Stocks
    6. The Nasdaq/Bond Ratio May Be Bottoming
    7. The Nasdaq Composite Index Hits a 12-Year High
    8. Banks Show New Leadership
    9. Homebuilders Bottom
    10. Adding a New Dimension to Technical Analysis
    11. Reading Up on Charting
    12. Chart School
    13. Neural Networks
    14. Looking Ahead
    15. A Dollar Bottom Would Have a Depressing Effect on Commodities
    16. A 40-Year Trend of the CRB Index
    17. The Stock/Commodity Ratio Favors Stocks over Commodities
    18. Trade trends, not opinions
  14. About the Author
  15. Index