Quick Inter-market Glance

Oct 28, 2007: 1:42 PM CST

Inter-market relationships have been performing somewhat according to script lately, so let’s look quickly at what we might learn from the current posture.

An overview:

Bond prices and stock prices move together (though bonds often lead stocks)

The US Dollar Index moves inversely to most commodity prices (inflation based factors)

Commodities and bond prices often move inversely

The US Dollar Index has trended downwards all year long and just recently – again – made new index lows.

Commodities have made new index highs ($CRB Index) and stocks are mere percentage points away from new highs.

Let’s take a brief overview of the short-term charts of these indexes:

Notice the absolute inverse relationship between the US Dollar Index and the $CRB Commodities Index.

Gold has been making new 27 year highs, and Oil has been making new all-time price highs, which indicate potential inflationary concerns.

Analysts are discussing the possibility of the Federal Reserve cutting US Interest Rates this week, but to do so could potentially add to the inflationary concerns.

It’s something to keep a vigilant watch.

Lower interest rates create further downside pressure on the US Dollar Index (and its relative strength with other currencies) which simultaneously has the effect of raising most commodity prices, which tend to reflect inflationary concerns.

Decreased rates will increase pressure on Bond Prices.

The Federal Reserve is in a precarious position, and the Major Inter-related Markets are performing almost perfectly according to script.

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