Something’s Gotta Give in the Intermarket Landscape

Jan 18, 2012: 11:42 AM CST

If you use Intermarket or Cross-Market Analysis in your trading or investment decisions, you’ve probably noticed something very strange over the last few months.

Let’s take a look at “What’s Going Wrong” from a classic Intermarket perspective which leads us to “What’s Gotta Give” in terms of a building reversal.

First, the closer perspective of five Cross-Market quick charts:

In terms of Cross-Market Analysis, it’s best to group the broad markets into four components:  Stocks/Equities, Bonds/Treasuries, Commodities, and Currencies.

This can be done in a number of ways using various Index symbols or popular ETFs.

From this, you can view various trends and then break each market down into individual components for clearer trading opportunities.

But for this post, I want to focus on the difference between “Risk-Off” Markets or defensive markets such as US Treasuries (Bonds) with the US Dollar Index and the “Risk-On” or offensive markets such as Commodities (Gold and Crude Oil above) and of course Stocks.

Risk-Off (defensive) and Risk-On (offensive) Markets tend to move opposite each other in terms of their trends… but that’s not what’s happening currently which warrants our attention.

In the line chart above, we see ALL markets (except for Gold) rising from the September or October lows to the current January highs.

In fact, these creeping uptrends leap off the charts at us, which brings us to the dilemma:

Why are all markets rising and what does it mean?

When will one or more of these markets reverse back to “normal?”

The answer is beyond the scope of this post but it merits further attention.

From a quick price perspective, here are the current resistance levels to watch:

  • 1,300 for the S&P 500
  • $103 for Crude Oil
  • $1,700 for Gold
  • 131 for 10-Year Notes
  • 81.50 in the US Dollar Index

Would it be possible for all markets to break above their respective resistance levels?  Yes, anything could happen, but that would be the lower-probability (and some would say “very unlikely”) outcome.

The classical thinking would be that either the Risk-On markets fail to overcome resistance and reverse lower, boosting Risk-Off assets above their resistance, or vice versa (Risk-Off Markets boost higher, reversing Risk-On Markets).

Here’s a longer perspective Cross-Market Line Chart from 2011 to present:

Watch these markets, as well as larger perspectives/timeframes, in the context of classical “Risk-On” and “Risk-Off” parameters.

Mark Douglas in his popular book Trading in the Zone reminds us that “Anything Can Happen” in the markets, but given the critical resistance levels and creeper (divergent) rallies into respective resistance, one has to assume that “Something’s Gotta Give (reverse)” soon.

Corey Rosenbloom, CMT
Afraid to

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Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

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14 Responses to “Something’s Gotta Give in the Intermarket Landscape”

  1. Wednesday links: winning the recession | Abnormal Returns Says:

    [...] The intermarket landscape is muddled.  (Afraid to Trade) [...]

  2. Frank Says:

    not really. this is a combination of investors fleeing the euro moving into the perceived safety of  US T's and the $ and in some cases even the stock market.  crude up on the fear trade (Iran conflict, certainly not supply/demand since the world's in retraction).  stock market up because the government wants it up and there are no other places to go to get yield.  gold down because of the IMF debacle and the realization that governments will intervene in this market also and declare you a terrorist if you own it!  IMO, with so much gov intervention in markets, the old norms/relationships have been sabotaged.

  3. Ralphie Says:

    Could it be because the market is no longer a tool to help companies grow and where value is based on how much money can be extracted by protracted means and High frequency computers that don't give a damn  or even know what a company is and the suckers are those who use logic ?

  4. Ralphie Says:

    How can you reply 26 minutes ago to what I posted 14 minutes ago? Are you a High frequency reply artist?

  5. Corey Rosenbloom, CMT Says:

    That could be part of it, but as Frank mentions, and what I didn't show above was the fall of the Euro which is also known as a Risk-On asset.

    It could be that the traditional “Risk” markets are shifting, or at least that larger funds are adding additional markets as potential hedges.

    The other part is indeed the Central Bank worldwide intervention in easing/stimulus policies that distort (that's putting it nicely) long-standing market relationships.

  6. MutantDog Says:

    I think (and have said before, elsewhere) that any America-only analysis of financial markets is bound to be incomplete in this global age.

  7. The Strange Intermarket Landscape | All Star Charts Says:

    [...] Market Technician (CMT) and does some awesome Intermarket work on his site. His most recent blog post gets into some of the strange action that we’ve seen in the Intermarket Landscape over the [...]

  8. The Strange Intermarket Landscape | The 360 Financial Post Says:

    [...] Market Technician (CMT) and does some awesome Intermarket work on his site. His most recent blog post gets into some of the strange action that we’ve seen in the Intermarket Landscape over the [...]

  9. Googsplat Says:

    Excellent.  Fed and ECB is definitely distorting the long end of the curve on bonds, which would be showing much higher yields without their intervention.  Slowly, the money leaks back into equities.  So the bond bubble will deflate with logarithmic speed, while the equity bubble reinflates.  Already happening in tech, commodities.

  10. Charting a Potential Break in Bond Fund IEF and TLT | Afraid to Blog Says:

    [...] IEF and TLT Jan 20, 2012: 4:39 PM CST Following up with my prior inter-market post this week “Something’s Gotta Give,” let’s take a look at the sharp down-move that developed since then as seen in bond [...]

  11. Sage Weekly Letter | The Stock Sage Says:

    [...] Corey Rosenbloom (@afraidtotrade) posited a question last week that was on many people’s minds: “Why are all markets rising and what does it mean?” - Corey posted the following excellent chart which showed the curious trend of five different [...]

  12. Jay Says:

    How do you display multiple charts like that in StockCharts? Or did you photoshop them together?

  13. Quick Charting the Key Daily Levels on INDU and SP500 | Afraid to Blog Says:

    [...] traders, this is a key inflection where “Something’s Gotta Give,” and you can develop trades based on what happens (or more specifically, which price level [...]

  14. Geoff Coe Says:

    Ah, what a good site!  I wish I could come to the trade expo, but I don't think I'll be able to.  Still, truly great trading blog. One of my top ten sites to visit (maybe even top 5.)

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