Intermarket Shake Up Day April 26

Apr 26, 2011: 11:03 AM CST

If you’re a close follower of intermarket relationships, you were likely surprised by this morning’s strange intermarket behavior.

Let’s take a look at this morning’s “Inter-market Shake-up” and try to figure out where to go from there:

In general, current Inter-market Relationships are based generally in the idea that Stocks and Commodities move together, and thus move opposite the Dollar Index (and to an extent, bond prices).

Stated differently, the accepted “Risk-On” markets are gold, oil, silver, stocks, the Euro, etc while the “Risk-Off” markets are Treasuries and the US Dollar Index.

While these tendencies hold generally true, they are not necessarily true tick-by-tick as there are individual differences and nuances to each market.

Case in point, yesterday it was announced that the CMG Group is raising margin requirements for Silver futures contracts – that change takes place by the close of business today, April 26th.

A rise in margin requirements forces some traders (who are overleveraged) to liquidate their positions for no other reason than they cannot meet the new higher capital requirements and have chosen to sell current positions instead of adding new money to their margin/futures account.

A similar situation occurred for gold futures contracts on March 24th with a one-day sudden sell-off on the news.

Anyway, it would appear higher margin requirements – and the selling to square-up positions – are bending current inter-market relationships:

Beyond the new margin requirements, the stock market investors appear focused on Chairman Bernanke’s Federal Reserve meeting and press conference tomorrow afternoon.

As it were, the S&P 500 gapped up and bolted higher from the open while oil and gold fell or stagnated.  The US Dollar index, after an initial opening gap down, rallied sharply even while stocks rallied.

The main idea with this post is to show that intermarket relationships, while strong, do not necessarily move tick-by-tick every single day.

Always keep focused on the relationships as to whether they are moving as expected and all is well, or if there is some short-term shift or intraday ‘shake-up’ in price action among markets.

Corey Rosenbloom, CMT
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2 Responses to “Intermarket Shake Up Day April 26”

  1. Terlyn12001 Says:

    And TLT rallied as well as stocks. Looks like an inverse head and shoulders with TLT.

  2. MarkVT Says:

    hard to know what the markets are going to do