Technical Analysis
A COMPARISON Of THE WORLD'S THREE LARGEST EQUITY MARKETS: THE UNITED STATES,
JAPAN, HONGHONG AND BRITAIN. GLOBAL MARKETS COLLAPSED TOGETHER IN 1987. THE GLOBAL STOCK MARKET RECOVERY THAT LASTED THROUGH THE END OF 1989 WAS LED BYTHE JAPANESE MARKET.
World Equity Trend
ALL MARKETS ARE RELATED
What this means for traders and investors is that it is no longer possible to study any financial market, whether it's the U.S. stock market or gold futures. Stock traders have to watch the bond market. Bond traders have to watch the commodity markets. And everyone has to watch the U.S. dollar. Then there's the Japanese stock market to consider. So who needs intermarket analysis? it stands to reason that anyone interested in any of the financial markets should benefit in some way from knowledge of how world market relationships work.
IMPLICATIONS FOR TECHNICAL ANALYSIS
Technical analysis has always had an inward focus. Emphasis was placed on a particular market to which a host of internal technical indicators were applied. There was a time when stock traders didn't watch bond prices too closely, when bond traders didn't pay too much attention to commodities. Study of the dollar was left to interbank traders and multinational corporations. Overseas markets were something we knew existed, but didn't care too much about.
It was enough for the technical analyst to study only the market in question. To consider outside influences seemed like heresy. To look at what the other markets were doing smacked of fundamental or economic analysis. All of that is now changing. Intermarket analysis is a step in another direction. It uses information in related markets in much the same way that traditional technical indicators have been employed. Stock technicians talk about the divergence between bonds and stocks in much the same way that they used to talk about divergence between stocks and the advance/decline line.
Markets provide us with an enormous amount of information. Bonds tell us which way interest rates are heading, a trend that influences stock prices. Commodity prices tell us which way inflation is headed, which influences bond prices and interest rates. The U.S. dollar largely determines the inflationary environment and influences which way commodities trend. Overseas equity markets often provide valuable clues to the type of environment the U.S. market is a part of. The job of the technical trader is to sniff out clues wherever they may lie. If they lie in another market, so be it. As long as price movements can be studied on price charts, and as long as it can be demonstrated that they have an impact on one another, why not take whatever useful information the markets are offering us? Technical analysis is the study of market action. No one ever said that we had to limit that study to only the market or markets we're trading.