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There are several relationships that have been (are) very helpful to me.
Don't get me wrong, I don't think that day to day fluctuations or even week
to week fluctuations correlate or link well at all (a three day rally in
the CRB isn't generally going to have much impact on the bonds), but
intermediate and long term trends certainly offer insight. In terms of
short term trading, I don't think these linkages matter much, but if you
have to have a bigger picture outlook and framework, they can be important.
I even use one long term system and one intermediate term system for my
consulting clients that successfully uses Intermarket relationships.
I do agree that trading most of these relationships is extremely difficult.
In terms of day to day and week to week trading, I find most of the
information I need is contained on a chart with price and volume, a few
simple lines and entry tactics like the ones I covered in my post
yesterday. The intermarket work (other than the systems) is more like a
backstop. For instance, I would never short the bonds simply because Crude
Oil was rallying, but if Crude Oil is rallying strongly enough, and the
market is focused on it, I wouldn't typically be a bond buyer (for more
than a swing or trading turn).
In terms of the Basketball chart, over the years I have seen a lot of this
kind of thing, usually offered with tongue planted firmly in cheek. You can
find seemingly correlated events and cycles everywhere.... if you have the
time and energy.
Anyway, I disagree with the characterization of intermarket technical
analyses as a farce. I use it and I know of others that use it and find it
valuable.
Hope all is well.
>I use examples like this to explain to people why "intermarket technical
analysis" is a farce. The ultimate problem is that correlation neither
indicates nor implies *causation*.
>
>When people talk about "intermarket relationships" they often imply that
movement in one market *causes* movement in another. (Commonly referenced
examples of this are currencies and bonds, or currencies and stocks, or
stocks and bonds.)
>
>The problem, of course, is that, while there may be a (temporary)
correlation between certain markets, that is no reason to suppose that
there is any sort of *causal* relationship between the two.
>
>And indeed, I will argue that there *cannot be* any causal relationships
between free markets because the instant any such relationship were
discovered it would have been fully exploited and disappeared.
>
>This is why "intermarket technical analysis" is a farce.
>
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>Good trading,
>
>OM
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Stewart Taylor
Taylor Fixed Income Outlook
Voice: 501-219-9774
Fax: 501-228-0963
E-Mail: staylor@xxxxxxx
Web Site: http://www.cei.net/~staylor/
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