Matthew Kerkhoff, options expert and editor of Dow Theory Letters, continues his 14-part educational...
How to Use Intermarket Analysis to Find Great Trades
09/15/2009 12:01 am EST
Intermarket analysis is the study of various financial markets and the relationships they have on one another.
Just as each domino affects every other domino in the chain, each financial market affects every other financial market throughout the interconnected world in which we live.
For instance, if a major event occurs in the stock market, it will most likely have an effect on the bond market, the futures market, and the forex market. Similarly, if a major event occurs in the forex market, it will most likely have an effect on the stock market, the bond market, and the futures market.
By studying the major movements and influences in various markets, you can better understand and prepare for what is happening and what might happen in the future within the market in which you are invested.
What You Should Be Watching
As you get ready to start your intermarket analysis, you need to know a few of the key indicators you should be watching. The following are a few suggestions that should give you a broad perspective of what is happening in the global financial markets:
- The S&P 500 (index of US stocks)
- The VIX (CBOE Volatility Index)
- The US Dollar Index (USDX)
- Short-term interest rates, ex. Federal Funds Rate
- The US Treasury yield curve
- Upcoming economic announcements
- Oil prices
- LIBOR (London Interbank Offered Rate)
Conducting an Intermarket Analysis
Conducting an intermarket analysis is really not as difficult as it may sound. All you have to do is keep you eye on a few major indicators and watch how the trends are developing.
Of course, it will take some time to become familiar with the various economic and financial indicators that you should be using in your intermarket analysis and how each one relates to various markets, but it will come in time. Start with this introduction, and keep going from here.
Watch the video now for more details:
By S. Wade Hansen of LearningMarkets.com
Related Articles on STRATEGIES
The monthly S&P500 Emini futures candlestick chart has not had a pullback in 14 months. This has...
Profit from a market by capturing a trend. Money management is key. The battle is often from within,...