Intermal analysis is a technical analysis area that studies the correlation between the four main classes of assets - shares, bonds, goods and currencies. John Murphy in his classic book "Intermal Analysis" (Intermarket Analysis, John Murphy) notes that technical analysts can use these relationships between different markets to determine the stages of business cycles and improve the quality of their forecasts. There is a clear relationship between shares and bonds, bonds and goods, as well as goods and the US dollar. Knowledge of these relationships can help technical analytics to determine the stage of investing cycle, choose the best sector and avoid the weakest sectors, which will help him get regularly increasing his.
Inflation relationships
Relationships between markets depend on inflationary and deflationary forces. In the conditions of the "normal" inflationary environment, promotions and bonds have a positive correlation. This means that both of these assets are in one direction. The world was in the inflationary environment in the period from the 1970s until the end of the 1990s. Here are the main intermal relationships in the conditions of the inflationary environment:
- Positive relationship between bonds and promotions. Bonds, as a rule, change the direction earlier shares
- Reverse relationship between bonds and goods
A positive relationship means that when one asset goes up, the other is also going up. With a reverse relationship, if one asset grows, the other is falling. Interest rates grow when bonds go down.
In the inflationary environment, stocks react positively to fall interest rates (increase the cost of bonds). Low interest rates stimulate economic activity and accelerate the growth of corporate profits. It should be borne in mind that the term "inflationary environment" does not mean galloping inflation. It simply indicates that inflationary forces are stronger than deflationary.
Deflation relationships
Murphy in his book notes that in about 1998 there was a shift from the inflationary environment towards the deflationary environment. It began with the collapse of Thai Bat in the summer of 1997 and quickly spread to neighboring countries. This event was called "Asian Currency Crisis". Central banks Asian countries raised interest rates to support their currencies. But high interest rates led to the shocks in the economy of these countries and only complicated the problem. The global deflation arising from this threat forced the capital to flow from shares to bonds. The stock quotes dropped sharply, treasury bonds rapidly increased, and interest rates in the United States have decreased. This led to a violation of connections between the shares and bonds, which continued for many years. Large deflationary events continued on the form of a bubble collapse at NASDAQ in 2000, the collapse of the bubble in the housing market in 2006 and the financial crisis in 2007.
Deflation threats make capital move to safer assets, which leads to an increase in the bond market
Intermal interrelations in the conditions of a deflationary environment, mainly the same, in one exception. Shares and bonds in such a period have reverse correlation. This means that the shares are growing when bonds fall, and vice versa. Consequently, the shares have a positive correlation with interest rates. That is, stocks and interest rates will grow together.
Obviously, the deflationary forces change the entire dynamics of the market. Deflation adversely affects promotions and goods, but positively on bonds. Rising prices for bonds and the fall in interest rates increase deflationary threats, which puts pressure on the quotes of shares, forcing them to decline. Conversely, the reduction in prices for bonds and the increase in interest rates reduce deflationary threats, which has a positive effect on the shares. Below is a list of basic interchangeable relationships in a deflationary environment.
- Reverse relationship between bonds and promotions
- Reverse relationship between goods and bonds
- Positive relationship between promotions and goods
- Reverse relationship between the US dollar and goods
US dollar and goods
Although the dollar I. currency market are part of the intermarket analysis, the dollar can be considered a fairly unpredictable factor. The weak dollar does not have a bullish influence on the shares, if not accompanied by a serious increase in prices for goods. Obviously, the growth of commodity markets has a bearish effect on the bond market. A weak dollar usually leads to a drop in bond market. The weakness of the dollar stimulates the economy, making exports more profitable. This win shares of large multinational corporations, which are obtained a significant part of their revenue through sales in other countries.
What is the effect of strengthening the dollar? The currency of any country is a reflection of its economy and the national balance. Countries with severe economies and strong balance have a stronger currency. In countries with weak economies and high debt load currency weaker. The growth of the dollar's course has negative pressure on the price of goods, because many products, such as oil, are listed in global markets in dollars. Bonds benefit from lowering goods price, because it reduces inflationary pressure. Shares can also benefit from lower prices for goods, because the prices of raw materials are reduced.
But not all products are the same. In particular, oil is subject to interruptions with deliveries. An unstable situation in countries or regions that are oil producers usually causes oil prices to grow. Rising prices As a result of supplying interruptions, negatively affects promotions. At the same time, growth caused by an increase in demand may have a positive effect for stock. The same applies to industrial metals that are not as susceptible to interruptions with deliveries. Therefore, technical analysts can use industrial metals prices for a better understanding of the state of the economy and stock market. Rising prices is a reflection of the growing demand and rehabilitation of the economy. The fall in prices indicates a decrease in demand and a weak economy. On the chart below you can see a clear positive relationship between prices for industrial metals and S & P 500.
Industrial metals and bonds grow for various reasons. Metal prices are growing when the economy is growing and / or when inflation pressure increases. Under such conditions, bonds fall. And they grow when the economy is weak and / or a deflationary pressure is created. The ratio of these two markets can help better understand the strength / weakness of the economy and inflation / deflation. The ratio of prices for industrial metals to the prices of bonds will grow when a strong economy and inflation dominate. And it will decline in conditions of deflation and a weak economy.
Rising Relations Metals / Bonds favor inflation and growth of the economy
Falling relations Metals / Bonds favor deflation and weakening of the economy
conclusions
Intermal analysis is a valuable tool for long-term and medium-term analysis. Although the considered intermal relationships work quite well at long periods of time, they are subject to drawdowns, that is, periods when such relationships do not work. Such large-scale events such as the euro crisis or the financial crisis in the United States can break certain interrelations for several months. In addition, the tools considered in this article should be used in conjunction with other methods of technical analysis. The graph of the price ratio of industrial metals and bonds can be included in its set of indicators wide marketdesigned to evaluate common or weakness stock market. For high-quality assessment market conditions Do not use some one indicator or one relationship.
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Intermal analysis. Principles of interaction financial markets John Moofe
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Title: Intermal analysis. Principles of interaction of financial markets
Posted by: John Merfi
Year: 2012.
Genre: Banking, Securities, investment, overseas business literature
About the book "Intermal Analysis. Principles of Interaction of Financial Markets »John Merfi
This book is an updated version of the Merphic Merphic Technical Analysis issued in 1991. It opens brief overview 1980s. With an emphasis on significant intermal changes, which led to the beginning of the greatest in the history of the bull market shares. The remaining part addresses the events that occurred on the market after 1998 intermal relationships are very useful in areas of distribution of assets and economic forecasting. More importantly, what they help determine which part of the financial spectrum opens the best opportunities for profit. For intermal analysis it is not necessary to be a specialist. It is only necessary to distinguish the movement up from movement down, and, of course, common sense.
The book written by a simple and understandable language is addressed to both experts in the field of investing and trading and individual investors, as well as those who are interested in these issues.
On our site about LifeInBooks.NET books you can download free without registration or read online book "Intermal analysis. Principles of interaction of financial markets »John Murphy in EPUB, FB2, TXT, RTF, PDF formats for iPad, iPhone, Android and Kindle. The book will give you a lot of pleasant moments and the true pleasure of reading. Buy full version You can have our partner. Also, we will find latest news From the literary world, learn the biography of your favorite authors. For novice writers there is a separate section with useful advice and recommendations interesting articlesThanks to which you yourself can try your hand in literary skills.
There are several types of stock analysis on the market. The main, undoubtedly, are fundamental and technical analysis.
Especially sensitive in this plan of the enterprise with already high debt burden. Excess debt / own capital (D / E) 70% is already a risk factor, not to mention over 100%.
Another point is in the field of corporate finance theory. Analysts often calculate the fair value of stocks, based on the models of discounted cash flows (DCF). According to these models, expected cash flows The present period is given by the discount rate. This rate depends on the risk-free yield and is in the denominator in the calculations.
Respectively, the higher the risk-free rates, the lower the calculated fair value shares. A similar alignment is able to provoke large portfolio managers for the sale of shares with confident growth of Treasuries returns, as well as to revise Target investdoms.
Well, and the most banal moment. This situation is particularly dangerous for traditionally dividend sectors - telecoms, energy, everything is simple, the higher the yields of long state bonds, the less interesting earnings on dividends. It is much easier to invest in relatively risk assets, not exposed to specific risks of shares. This means that the dividend needs a drawdown for successful competition with a mustache.
Dollar and bonds
Here the relationship between the tools themselves in the theory is negative. The higher the profitability of bonds, the more the dollar should look like. To assess general trends there is a dollar index (DXY), which shows the dynamics of the American against the basket of world currencies.
The higher the interest rates in the United States in comparison with the "abroad" rates, the more attractive the dollar for shopping. In addition to bets, as such, the state of the US economy is influenced by the US currency. Again, the improvement of the economy contributes to the growth of inflation expectations, and therefore pushes interest rates upwards.
The dynamics of assets from 1998 to 2008, timeframe monthly
Do not forget about geopolitical risks and other catastrophes. At such periods, the market goes to risk-free assets, including dollar and treasuries. So local takeoffs of DXY against the background of falling yields can be fully justified.
Dollar and promotions
Strengthening the dollar together with the increase in the yield of bonds means tightening financial conditions, so dangerous for the stock market. Moreover, the growth of US currency is not profitable for US exporters, which account for a decent part of American corporations from the S & P 500 index.
Dollar, Bonds and Commodity Markets
The DXY index has a negative relationship with commodity assets, for almost all similar tools are nominated in dollars. The higher the American course, the less attractive commodity markets. I note that the CRB index is considered a classic complex indicator in the Commodities market.
Especially in this background gold is allocated. Often the quotations of the "yellow metal" react faster on the dynamics of the dollar, ahead of other commodity assets. All trite, gold is considered to be traditional insurance against inflation. The higher the interest rates and the above dollar rate, the lower the risks of inflation, which means less attractive gold.
It should be understood that for different groups Commodity markets are characterized by specific risks and catalysts affecting demand and supply. So, the dollar tracking is not a "panacea" and the driver of all movements.
Dynamics of assets for the year, timeframe day
Business Cycle Analysis
Consider the long-awaited basic chain: Bonds (interest rates) - Dollar - Commodity Markets - Bonds (interest rates) - Shares - ...
1) Increasing interest rates (falling bonds) leads to the strengthening of the dollar.
2) Gold begins to decline.
3) Other commodity markets are followed for gold down (CRB index).
4) Inflationary expectations are reduced. Interest rates begin to fall, and the bonds grow.
5) the stock market is growing.
6) Against the fall of the yields weakens the dollar.
7) Gold begins to strengthen.
8) Following gold strengthened other commodity markets.
9) Inflation expectations are growing, and behind them and interest rates. Reduced bonds.
10) shares fall.
11) The dollar is strengthened, etc.
Thus, we have a closed cycle. Approximate Tool Movement Scheme within economic cycle marked in the diagram. I note that for the decline of the economy is characterized by a decrease in the interest rates of the Fed, and for growth - an increase in rates.
Book D. Murphy entitled "Intermal technical analysis" Designed to readers who do not have professional training in the field of technical analysis. One of the main topics is that absolutely all markets are trade, currency, stock and others are closely interrelated. Stock markets have a great influence of bond markets. And the price of the bond largely depends on the trends in commodity markets, and those, in turn, directly depend on the provisions of the Forex market. The US market has an impact on the markets of other countries, which also affect the American market. Changes in the same market lead to consequences for all others. And all these relationships and patterns should be taken into account when technical analysis.
In his book, Murphy has an accessible language explains these relationships and shows practical examples of how this information can be used. The author considers the 4 market sectors in detail: the bond market, the stock market, the commodity market, the Forex currency market.
By definition of Murphy, intermal technical analysis is the use of technical analysis to existing intermal bonds. Book materials are illustrated by numerous graphs. And for newcomers of technical analysis at the very end of the book there is a dictionary, deciphering the definitions of all the formulations and tools found in the book.
After reading this book, you can discover the newest approach to financial markets. You will see the depth of relationships between different markets and you can use this knowledge using the described method of graphic analysis.
Year of issue: 1999Genre:Finance, Forex (Forex)
Publisher: "Diagram"
Format: Djvu.
Quality: Scanned Pages
Number of pages: 317
Description:The Book "Intermal Technical Analysis" is the result of a long study of intermal bonds. The graphics presented in it clearly demonstrate the interdependence of various market sectors and convincingly prove the need to take into account this interdependence. In my opinion, the main dignity of the intermarket analysis is that it expands the field of view of a technical analytics. Working on the market, without resorting to intercussion analysis, it is like to drive a car without looking into the mirror. In other words, it is extremely dangerous. Intermal analysis is applicable in all markets in all regions of the world. It enriches technical analysis by examining external factors, allowing you to deeper to understand the nature of market forces and get a more holistic understanding of the action of global market mechanisms. The study of the dynamics of adjacent markets pursues the same goal as the use of traditional technical indicators- determine the future direction of price movement. Intermal analysis does not replace the rest technical instruments, it simply gives technical analysis to an additional dimension. It also attracts the attention of a technical analyst to such a job alien to him, as the dynamics of interest rates and inflation, the policy of the Federal Reserve System, economic analysis and economic cycles.
The Book "Intermal Technical Analysis" is rather the initial than the final stage in the development of intermarket analysis. There is still a lot to do to understand how different markets are connected with each other. Although the principles described in the book perfectly work in most situations, they should be understood as common patterns, and not as strict mechanical rules. The scale of the intermal analysis is Great: It forces us to strain the imagination and expand the horizon, but the potential benefits of this repeatedly compensate for additional efforts. The intermarket analysis has a great future, and I hope that by reading the book, you will agree with me. Book's contents
New technical analysis horizons
All markets are interconnected
How does this affect the technical analysis
The purpose of this book is
Four market sectors: currencies, goods, bonds and promotions
Basic background intermarkets
Intermal analysis as a source of auxiliary information
Support on external, and not on internal data
Special attention is paid to the analysis of futures markets
An important role of commercial markets
Key relationships between markets
Structure of book
Crisis of 1987 from the point of view of intermal ties
Low inflation and stock rise stock
Bond Owls - alarm for the stock market
The role of dollar
Brief summary of key intermarket relations
The advance and lag of the dollar
Commodity yen and bonds
Key role inflation
Economic justification
Market development in the 80s
Bonds and CRB index after the events of 1987
As a technical analyst can use this information
Combined technical analysis of goods and bond markets
Use of relative force analysis
The role of short-term interest rates
The importance of the dynamics of the treasury billing market
Need to track all markets
Some correlation values
Dependence between bonds and promotions
Financial markets keep defense
Bonds in the bond markets (1981) and shares (1982)
Bonds as a leading indicator of shares
Bonds and stock markets should be analyzed together.
How to take into account long periods of ahead?
Short-term interest rates and bond market
Rule "Three Steps and Fall"
Historical perspective
ROLE OF ECONOMIC CYCLA
What is the role of the dollar?
Commodity Markets and Dollar
The dollar and commercial yen are moving in opposite directions
Trends in commodity markets as an inflation indicator
Dependence between the dollar and the CRB index
Problem ahead
Keyword Gold Market
Foreign currencies and gold
Gold as ahead of the CRB Index Indicator
Combined Dollar, Gold and CRB Index
Dependence between the dollar, interest rates and shares
Commodity markets: lag or advance?
Dollar and short-term interest rates
Dependence between long-term and short-term rates
Dependence between dollar and futures for bonds
Dependence between the dollar and futures for treasury bills
Dependence between the dollar and the stock market
Sequence of changes in the dollar rate, interest rates and stock market
Dependence between markets and stocks
Gold and stock market
Gold - the key to understanding the most important intermal ties
Interest rate difference
Product market indices
Commodity Prices, Inflation and Fed Policy
How the CRB index is built
Research of correlations of various groups
Markets of grain, metals and petroleum products
Dependence between CRB futures price index and spot yen index CRB
How the CRB spot index is being built
Dependence between yen on industrial raw materials and food
Journal of Commerce Index (JOC)
Graphic comparison of various product indexes
Dependence between food yen and industrial raw materials
Joc index and yen index on industrial raw materials
Dependence between CRB futures yen index and JOC index
Dependence between interest rates and commodity indexes
CRB index - a more balanced picture
Group indices of futures yen CRB
Dependence between CRB index and group indices of grain, metals and energy carriers
Dependence between energy and metals markets
The role of gold and oil markets in the system of intermal ties
Communication of futures for metals and energy carriers with interest rates
Commodity Markets and Fed Policy
Dependence between CRB index and PPI and CPI indices
Communication interest rates with CRB, PPI and CPI indexes
Chapter 8. International Markets
World markets Aqui.
The collapse of world markets in 1987
British and American stock markets
American and Japanese stock markets
World interest rates
World markets of bonds and world inflation
World intermarket indexes
Commodity index of the magazine "Economist"
Groups of stocks
Groups of Shares and Relevant Commodity Markets
Dependence between CRB index and bond market
Dependence between the yen on gold and akia gold mining companies
Why Gold Akias Shine Brighter Gold
Dependence between oils on oil and akia oil companies
New line of discrepancy analysis
Stakes sensitive to interest rates
Dependence between loan-savings accommodation and Dow-Jones index
Dependence between loan-savings accommodation and bonds
Dependence between loan-savings excavation and CRB index
Dependence between the shares of the largest banks and the cumulative index of the New York Stock Exchange
Dependence between shares of gold mining companies and largest banks
Communal index of aou-aoux as a leading indicator of the stock market
Dependence between utilities and industrial indices DOU-Jones
The bond market is ahead of the peaks of a communal index
Dependence between the municipal index and bond market for a longer period
Dependence between the CRB index, bond market and the municipal index
Bond Market, Communal and Industrial Dow-Jones Indices
Analysis of the relative strength of commodity markets
Analysis of groups
Individual ranking
Analysis of coefficients
Relative coefficients
Comparison of Group
Charts of coefficients of commodity groups
Analysis of the energy group
Analysis of the precious metals
Gold / silver coefficient
Dependence between gold and oil
Individual ranking of commodity markets
Analysis of some commodity markets
Commodity markets and assets
CRB / Bigiai Coefficient Analysis
Dependence between CRB index and shares
CRB / Bediii coefficient ahead of CRB / promotion coefficient
The role of futures in assets
Comparison of four futures sectors
The value of managed futures accounts
Why do futures portfolio correlate with portfolios of shares and bonds?
Commodity futures as an assets class
What is the degree of risk?
Shift efficient border
Intermal analysis and economic cycle
Chronological sequence of changes in the markets of bonds, shares and goods
Gold market is ahead of other commodity markets
When do commodity markets rotate - first or last?
Six Stages of the Economic Cycle
The role of bonds in economic forecasting
Indices with large and small timing
Wen on stocks and goods as advanced indicators
Copper as an economic indicator
Copper and stock market
Myth of "Software Trade"
Software Trade - Corollary, not the reason
What is the reason for program trade?
Software Trade - Scale Code
Examples from one trading day
Graphic representation of the morning dynamics of markets
New direction
Intermal technical analysis: orientation for external factors
Influence of global trends
Technical analyst and intermal forces
Basic intermal principles and communication
Intermal analysis and futures markets
Commodity markets as missing link
Computerization and globalization
Intermal analysis - a new direction
Literature
