Intermarket Relationships Bend in Summer Heat

08/22/2013 6:00 am EST

Focus: STRATEGIES

Corey Rosenbloom

Founder and President, Afraid to Trade

When cross-market relationships break down, they usually does so temporarily, so traders should pay attention, so they don’t get caught in the reversal, notes technician Corey Rosenbloom of AfraidToTrade.com.

If you follow cross-market analysis or intermarket analysis, you may have noticed a subtle shift or bend in current relationships in 2013.

Let’s take a look at the recent shift, note what’s happened, and then peek at the broader picture of cross-market money flow in 2013.

chart
Click to Enlarge

For a reference, we’re seeing the leading ETFs for a quick glance at the cross-market or intermarket landscape:

USO for crude oil; SPY for the SP500; UUP (labeled USD above) for the US Dollar Index; GLD for gold; and TLT for bonds/Treasuries.

I created a performance chart starting the comparison in June 2013 but the main focus on the chart above is the highlighted region from mid-August to note a ‘bend’ or subtle shift in the ongoing relationships.

Throughout most of 2013, money has been flowing INTO stocks and oil (positively correlated) and OUT OF bonds and gold (positively correlated) and by proxy, stocks and oil have generally been negatively correlated with gold and US Treasuries.

In fact, let’s step up to the broader picture of money flow throughout 2013 so far:

chart
Click to Enlarge

Using green and red trendlines, we can see the broader money flow (ETF performance) with a rising (green) trend for the SPY and USO (stocks and oil) and a declining (red) trendline for TLT (US Treasuries) and GLD (gold).

Strangely enough, there’s no discernible trend—except for a sideways one—for UUP (the US Dollar Index fund). In fact, UUP is roughly unchanged from the start of 2013 so we’ll leave that aside for now.

At the moment, TLT is down 14% for the year while GLD trades 19% lower at the moment.

Stocks (SPY) and Oil (USO) are the relative strength leaders for the year, both rising roughly 13% so far.

Let’s draw our attention back to the recent August shift in money flow via ETF performance.

Specifically, oil and stocks have temporarily separated as have gold and Treasuries.

For a short period of time, gold has traded up along with oil while Treasuries have traded down with stocks.

Continue watching this “bend” or short-term shift in money flow as an interesting development that’s affecting the intermarket landscape at the moment.

Relationships can bend, but unless there’s a major fundamental factor at work, they tend to resort to pre-established relationships.

By Corey Rosenbloom, CMT, Trader and Blogger, AfraidToTrade.com

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