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Renowned chartist John Murphy talks about the relationships between various global markets, commodities, and currencies.

We’re talking global markets with John Murphy. John, it seems like things are constantly happening, and we’re always hearing about Europe in the news. We’ve sort of lost sight of South America to a certain extent. China has slowed down a little bit. Japan is crawling back and seems to have a pretty good short-term rally here. How do you see the world at this point?

Well, first of all, it’s important to recognize that you have to know what’s going on in foreign markets, because they definitely impact on what’s going on here. Over the last year, most of the problems have been in Europe, and that has weighed on our market. You’ll notice that in any given day when we get bad news out of Spain or something, it affects our market.

So if you went to look at a chart of the EAFE Index, which is the index of foreign developed markets, and overlay that on the US market, there is a correlation of 96%.

Wow.

So there’s a very strong correlation that most don't realize.

The world has become smaller.

In fact, just over the summer. Just as—I’m basically a chartist, so I’m talking from that perspective—if you were to look at the EAFE Index, which is Europe, Australasia, and the Far East that came down, it was testing the low that was set about a year ago. That’s a very, very critical support level. If that low had broken, I think that would have had very negative implications for our market.

Fortunately, it turned up. Part of the reason it turned up, or the main reason it turned up, was because of support for the euro, and the euro has rallied quite strongly.