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An interesting anecdote about Murphy's intermarket book:
I was speaking with Murphy a few months back, just before the update to
Technical Analysis of the Futures Markets (now Technical Analysis of the
Financial Markets) came out. He said that he has repeatedly asked Wiley
to stop printing the intermarket book. His reason was that many of the
market relationship conclusions that he comes to in the book have not
worked the past couple of years.
I would disagree with him though. I think that the importance of the
Intermarket book, is that it teaches you to look for hints of how
markets might change, due to investor psychology shifts, here, abroad,
etc. This is something that I always look for in my analysis. I will
look at charts of Hong Kong stocks, French stocks, etc to get a clue on
our stock market. Similarly, I always compare the dollar, bonds and
equities too (not to mention commodities). The inter-relationships are
complex and ever changing and this is what Murphy's book teaches you, as
long as you do not use it as a recipe for how the inter-market moves
MUST work.
I will give you an example of how these things change over time. The
"normal" correlation between stocks and bonds is positive. That is, as
yields fall, stock prices rise (as yields fall bond prices rise). The
correlation since early August 1998 has tended to be negative though as,
initially, there was a huge flight to quality bid for bonds as equities
tanked over the summer, followed by an unwinding of that activity since
then. I noticed though a couple of weeks ago that the tendency of late
was that there either was no correlation, or that it was positive. I
also saw that bonds were nearing key resistance, and that either way,
they were set to run at their lows. I also expected a retest to the
daily ascending triangle in the S&P 500.
Why would the correlation be moving back to normal? One possibility was
that the economy is stronger than people think. In the new age perverse
reaction to that, such thinking could be negative for stocks as I
thought this could play out as a drop for stocks and bonds together on
fears that the Fed might raise rates, or at least move the bias that
way. I wrote about that a couple of days before Lyle Gramley spoke about
it on CNBC! And I'm a technician. How about that!
--
Steven W. Poser, President
Poser Global Market Strategies Inc.
http://www.poserglobal.com
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