This article written by Arne and Falk Elsner was originally published in the March 2014 issue of Traders' Magazine.
- Arne and Falk Elsner have specialised in the main liquid markets and have been working for years with optimised trading systems on the short- and medium-term time levels. Professional trading and individual coaching are the two brothers’ core competencies
The principle of intermarket analysis is based on the interplay between the four major asset classes: bonds, stocks, commodities, and currencies. By reading the “language of the markets”, the intermarket model provides a suitable analytical basis for effective trading. Besides an introduction to “intermarkets”, this article offers concrete applications for trading and ways of optimising existing trading strategies. Based on the “crossover“ strategy, the possibilities offered by intermarket analysis as a logical trading filter will be presented.
I. Introduction to Intermarket Analysis
Intermarket analysis is all about the global capital flows in financial markets. The bond, stock, currency, and commodity markets are interrelated. If one of these markets is in an uptrend, this will have an impact on all the other markets. Intermarket analysis helps the trader tap into these very capital market flows. The multi-market approach presented below makes it possible for over and undervaluations to be recognised, providing insights into the expected market development. The past has shown that developments in the financial markets repeat themselves in similar market conditions. It is these fundamental interactions that intermarket analysis is based on. Those who understand the language of the markets will gain a better understanding of the future direction of capital market flows.
Combining Intermarkets with the Market and Business Cycles
The economy develops in a cyclical sequence of expansions and contractions. This constant change is called an economic or business cycle. It can be perfectly harmonised with the intermarket model. The market cycle relevant to traders precedes the business cycle since it is the future that is traded on the stock market. Figure 2 shows the idealised performance of the market cycle with the high and low points of the stock market.
The Stock Market Cycle Is a Harbinger of Highs and Lows
The market cycle can be divided into several stages during which the fundamental parameters on the financial markets change and new trend directions emerge. Important factors in this interplay include interest-rate developments, currency trends, the level of bond yields, and inflationary tendencies. They are the kind of fertile ground for whatever developments occur in the financial markets and these are reflected in the price charts. The occurrence and succession of distinctive performance highs and lows in the price charts of the bond, stock, currency, and commodity markets offer the intermarket analyst orientation and forecasting possibilities.
The information in TRADERS´ is intended for educational purposes only. It is not meant to recommend, promote or in any way imply the effectiveness of any trading system, strategy or approach. Traders are advised to do their own research and testing to determine the validity of a trading idea. Trading and investing carry a high level of risk. Past performance does not guarantee future results.
Editors’ Picks
AUD/USD stays directed toward 0.6700 after strong Aussie data, weak China's PMI
![AUD/USD stays directed toward 0.6700 after strong Aussie data, weak China's PMI](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/AUDUSD/macro-of-aussie-20-note-8668638_XtraSmall.jpg)
AUD/USD holds higher ground toward 0.6700 in Asian trading on Wednesday. The pair finds fresh bullish impetus after the Australian Retail Sales data beat estimates with 0.6% YoY in May. Weak China's Caixin Services PMI data fails to deter Aussie buyers. Eyes turn to US data and Fed Minutes.
USD/JPY extends gains above 161.50 ahead of US data, Fed Minutes
![USD/JPY extends gains above 161.50 ahead of US data, Fed Minutes](https://editorial.fxstreet.com/images/Markets/Currencies/Majors/USDJPY/five-thousand-japanese-yen-notes-on-many-dollars-background-30615054_XtraSmall.jpg)
USD/JPY trades on a stronger note above 161.50 after reaching a new high for this move near 161.75 during the early Asian trading hours on Wednesday. Market players remain focused on the possible Japanese FX intervention, which could cap the pair’s upside. US data and Fed Minutes awaited.
Gold price remains confined in a range below 50-day SMA, FOMC minutes in focus
![Gold price remains confined in a range below 50-day SMA, FOMC minutes in focus](https://editorial.fxstreet.com/images/Markets/Commodities/Metals/Gold/gold-gm187363896-28836378_XtraSmall.jpg)
Gold price continues with its struggle to gain any meaningful traction on Wednesday. Traders seem reluctant and prefer to wait for more cues about the Fed’s rate-cut path. Investors look to FOMC minutes for some impetus ahead of the NFP report on Friday.
Celebrity meme coins controversy continues amid Pump.fun revenue dominance
![Celebrity meme coins controversy continues amid Pump.fun revenue dominance](https://editorial.fxstreet.com/images/Resources/CryptoWorldSEO3_XtraSmall.jpg)
Meme coin generation platform Pump.fun outperformed the Ethereum blockchain in daily revenue on Tuesday after raking in $1.99 million. Following this achievement, a celebrity meme coin based on actress Sydney Sweeney was the subject of controversy after its developers dumped their bags on investors.
Benefit of the doubt: US consumer confidence and elections
![Benefit of the doubt: US consumer confidence and elections](https://editorial.fxstreet.com/images/Macroeconomics/EconomicIndicator/ConsumerSpending/ConsumerConfidence/woman-selling-bread-at-the-bakery-gm469225978-62283160_XtraSmall.jpg)
Despite widespread expectation for the US economy to be in recession in 2024, that fate has been avoided thanks to a resilient consumer. Yet it is difficult to square this undaunted spending with consumer confidence and sentiment readings that are lackluster at best.
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