The Middle East Panic Play and Intermarket Fallout

Mar 1, 2011: 1:30 PM CST

It’s always important to incorporate major headline news when doing inter-market analysis, because certain ‘narrative’ events can temporary unravel or unlink intermarket relationships, as we’ve seen over the last month as political uncertainty has spread in Africa/Middle-East.

One can even start to call it the “Middle-East Panic Play” in terms of what knee-jerk sudden moves occur in the cross-markets.

Here – let’s take a look at the fall-out:

The quick thesis is that spiraling political uncertainty, riots, and government overthrows in oil-rich countries threaten oil supplies and cause oil to spike sharply when the world gets news of escalating violence and political upheaval.

Oil spikes and investors also rush to gold for safety/protection – both due in part to the political uncertainty and inflation in the global system.

While there is a positive correlation between gold, oil, and the stock market, the relationship instantly breaks as stock investors sell/hedge as a knee-jerk “risk-off” reaction to the growing political instability and threat that high oil/gasoline prices will have on the broader economy.

The quick take is that – so far – increasing news of riots spreading is suddenly bullish for both Gold and Oil but bad for Stocks.

This is the same knee-jerk pattern that happened on February 20/21 as I highlighted in the post:

“Weekend Cross-Market Fall-out from Overseas News.”

For reference, here’s the republished chart from my February 21 post:

The only thing different in the two charts is that I show Silver on February 21st while this time I show the Dollar Index – which isn’t benefiting or suffering as much as the other cross-markets.

The Dollar is actually flat/stable/rangebound/sideways on the news – as was the case on February 21/22.

You need to be a hyper-fast trader to take advantage of these moves, or you can chose to focus your attention on trading just one market and the ‘trend-style’ intraday fall-out that happens when (and if) the same pattern repeats in the future.

Again, as stable as inter-market relationships are, they do change and the changes aren’t random, but often tied to major/headline news that works its way through the trading/investment world – very rapidly.

Corey Rosenbloom, CMT
Afraid to

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One Response to “The Middle East Panic Play and Intermarket Fallout”

  1. Key Trendline Price Level to Watch in US Dollar Index | Afraid to Blog Says:

    […] Keep in mind that Middle-East tensions have temporary shifted the classic Inter-market Relationships (as I showed in yesterday’s post). […]