Trading with Intermarket Analysis E-Book

John J. Murphy

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: Wiley Trading Series
• Sprache: Englisch
• Veröffentlichungsjahr: 2012

Seitenzahl: 381

Beschreibung

A visual guide to market trading using intermarket analysis and exchange-traded funds With global markets and asset classes growing even more interconnected, intermarket analysis--the analysis of related asset classes or financial markets to determine their strengths and weaknesses--has become an essential part of any trader's due diligence. In Trading with Intermarket Analysis, John J. Murphy, former technical analyst for CNBC, lays out the technical and intermarket tools needed to understand global markets and illustrates how they help traders profit in volatile climates using exchange-traded funds. Armed with a knowledge of how economic forces impact various markets and financial sectors, investors and traders can profit by exploiting opportunities in markets about to rise and avoiding those poised to fall. Trading with Intermarket Analysis provides advice on trend following, chart patterns, moving averages, oscillators, spotting tops and bottoms, using exchange-traded funds, tracking market sectors, and the new world of intermarket relationships, all presented in a highly visual way. * Gives readers a visually rich introduction to the world of intermarket analysis, the ultimate tool for beating the markets * Provides practical advice on trend following, chart patterns, moving averages, oscillators, spotting tops and bottoms, using exchange-traded funds, tracking market sectors, and intermarket relationships * Includes appendices on Japanese candlesticks and point-and-figure charting Comprehensive and easy-to-use, Trading with Intermarket Analysis presents the most important concepts related to using exchange-traded funds to beat the markets in a visually accessible format.

Leseprobe

TRADINGWITH INTERMARKET ANALYSIS

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TRADINGWITH INTERMARKET ANALYSIS

A Visual Approach to Beating the Financial Markets Using Exchange-Traded Funds

John J. Murphy

Copyright © 2013 by John J. Murphy. All rights reserved.Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:

Murphy, John J.    Trading with intermarket analysis: a visual approach to beating the financial markets using exchange-traded funds / John J. Murphy.    p. cm.—(Wiley trading series)  Includes index.    ISBN 978-1-118-31437-1 (cloth); ISBN 978-1-118-41996-0 (ebk);ISBN 978-1-118-43399-7 (ebk); ISBN 978-1-118-42158-1 (ebk)    1. Investment analysis. 2. Exchange traded funds. 3. Stocks. I. Title.HG4529.M8625 2012332.63’27—dc23                                                                            2012020566

To chartists everywhere.

CONTENTS

Acknowledgments

Introduction

PART I The Old Normal

Chapter 1 Intermarket Analysis: The Study of Relationships

All Markets Are Related

Asset Allocation Strategies

ETFs Have Revolutionized Intermarket Trading

Sector Rotation and the Business Cycle

Stocks Peak and Trough before the Economy

The Role of Oil

Advantages of Using Charts

Viewing the Big Picture Is Important

Intermarket Implications for Technical Analysis

A New Dimension to Technical Work

Intermarket Work Is an Evolutionary Step

Why Relationships Change

Intermarket Principles

Review of the Old Normal

CHAPTER 2: Review of the Old Normal

1980 Was a Key Turning Point

The End of the Inflationary 1970s

The 1987 Crash Reinforced Intermarket Trends

The Two Iraq Wars

The 1994 Stealth Bear Market Follows Intermarket Script

Echoes from the 1930s

The Japanese Bubble Bursts in 1990

Chapter 3 The 1997–1998 Asian Currency Crisis

The Asian Currency Crisis Starts in 1997

Bonds and Stocks Start to Decouple

1997 and 1998 Were Only a Dress Rehearsal

Intermarket Lessons of 1997 and 1998

The Asian Effect Overrides the Fed

Two Deflationary Events of the 1990s

Deflationary Effect on Bond Yields

Japanese Deflation and U.S. Interest Rates

Summary

PART II The 2000 and 2007 Tops

Chapter 4: Intermarket Events Surrounding the 2000 Top

Events Leading up to the 2000 Top

Crude Oil Triples in Price

A Rise in Short-Term Rates Leads to an Inverted Yield Curve

REITs Benefit from Falling Stocks

Consumer Staples Start to Outperform

Market Lessons from 2000

Bonds, Stocks, and Commodities Peaked in the Proper Order

The 2002 and 2003 Bottoms Reverse Normal Order

The Fed Discovers Deflation during 2003

Commodities Turn Up during 2002

Chapter 5: The 2002 Falling Dollar Boosts Commodities

Commodities Inflate

Commodities Gain from Battle against Deflation

The Dollar Drop Leads to a New Bull Market in Gold

Falling Stocks Are Also Good for Gold

Not a Lot of Alternatives

Gold and the Dollar Experience Major Trend Changes

Shifting from Paper to Hard Assets

The Stock Peak Coincides with Gold Bottom

Gold Breaks 15-Year Resistance Line

Stocks End Secular Uptrend

Gold Outperforms Stocks for the First Time in 20 Years

The Oil Peak Coincides with the 2003 Stock Bottom

Chapter 6: Asset Allocation Rotations Leading to 2007 Top

Relative Strength between Asset Classes

Asset Allocation

2002 Shift from Paper to Hard Assets

The Commodity/Bond Ratio Also Turned Up

Turns in the Bond/Stock Ratio

The 2007 Bond/Stock Ratio Shifts Back to Bonds

Bonds Rise as Stocks Fall During 2007

Falling U.S. Rates Hurt the Dollar

The Falling Dollar Pushes Gold to a Record High

The Three Markets Peaked in the Right Order

No Such Thing as Global Decoupling

Chapter 7: Visual Analysis of the 2007 Market Top

Combining Traditional Charting with Intermarket Warnings

The NYSE Advance-Decline Line Shows Negative Divergence

What Caused the Divergence?

Rising Oil Hurts Transportation Stocks

The Dow Theory

Consumers Are Also Squeezed by Rising Oil

Retailers and Homebuilders Were Linked

Retail Stocks Start to Underperform Long before 2007

The 2005 Homebuilding Top Gave Early Warning

Another Bearish Warning During 2007

Why Breadth Measures Work

Summary

PART III The Business Cycle and ETFs

Chapter 8: Intermarket Analysis and the Business Cycle

The Four-Year Business Cycle

The Presidential Cycle

The Business Cycle Explains Intermarket Rotation

Lessons from 2000 and 2007

Oil Leads to Higher Rates from 2004 to 2006

The 2001 Fed Easings Didn’t Work

Comparisons to the 1920s and 1930s

Rotating Asset Classes over Decades

Lessons of Long Cycles

The Kondratieff Wave

Dividing a Lifetime Cycle into Seasons

Housing Is Interest Rate Sensitive

Real Estate Doesn’t Always Follow Rates

Real Estate Doesn’t Always Follow Inflation

The 18-Year Real Estate Cycle

The Real Estate Peak Was Overdue

Economic Cycles Set the Framework for Intermarket Work

Chapter 9: The Impact of the Business Cycle on Market Sectors

Sector Rotation within the Business Cycle

Sector Rotations during 2000 Favored Contraction

Sector Rotations during 2003 Favored Expansion

Technology Leadership Is Another Good Sign

Smaller Stocks Lead at Bottoms

Transportation Leadership

2007 Sector Rotation Showed Weakness

Sector Rotation Has Two Sides

It’s Also a Market of Groups

The Difference between Sectors and Industry Groups

Sector Rotation Model

Sector Rotations during 2007

Industry Group Leadership

Sector Rotations Turn Positive in 2009

Sector Trends Need to Be Monitored

2011 Rotations Follow Sector Rotation Model

Performance Bars

Using Sector Carpets to Find Leading Stocks

Comparing Absolute and Relative Performance

Sectors Are an Important Part of Intermarket Work

The Emergence of Exchange-Traded Funds

Chapter 10: Exchange-Traded Funds

Mutual Funds versus ETFs

Top ETF Providers

Stock Market ETFs

Bond ETFs

Commodity ETFs

Currency ETFs

Trading the Dollar

Foreign ETFs

Inverse and Leveraged ETFs

Summary

PART IV The New Normal

Chapter 11: The Dollar and Commodities Trend in Opposite Directions

Both Markets Need to Be Analyzed Together

The Rising Dollar Contributed to the 1997–1998 Commodity Collapse

The Falling Dollar from 2002 to 2008 Pushed Commodities Higher

The Dollar Bottom during 2008 Contributed to Commodity Plunge

Dollar Peaks in 2009 and 2010 Lifted Commodities

The Dollar Bottom in 2011 Pushed Commodities Lower

Correlation Coefficient

Gold Isn’t Like Other Commodities

Commodities Are Linked to Foreign Currencies

Gold Outperforms the Euro

Gold Outpaces Other Commodities

Gold versus Foreign Currencies

The Dollar’s Impact on Other Intermarket Trends

Chapter 12: Stocks and Commodities Become Highly Correlated

Another Side Effect of the Deflationary Environment

Commodities Lost Half Their Value in Just Six Months

Stock and Commodities Became Closely Correlated after 2008

Copper Influences Stock Market Direction

The Silver/Gold Ratio Influences the Stock Market

Silver Stocks Led Commodity Lower during 2011

The Influence of Commodities on Sector Performance

Commodities Led Stocks Lower during 2011

The Commodity Peak Also Influenced Sector Rotations

Gold Stocks versus Gold

Gold Miners Are Stocks

Gold Shares Underperform Bullion during 2011

Gold and Miners Relink during July

Dollar Direction Impacts Foreign Stocks

Chapter 13: Stocks and the Dollar

A Weak Historic Link between the Two

A Long-Term Comparison of Stocks and the Dollar

Stocks and the Dollar Become Negatively Correlated

The Commodity Impact on the Dollar-Stock Link

The Dollar Bottom during 2011 Hurts Stocks

The Dollar Impact on Foreign Stocks

Commodities Are Linked to Emerging Markets

China Influences Copper Trend

Chinese Stocks Influence the S&P 500

Europe Is Also Important

Currency Trends Impact Foreign ETFs More

France iShares Hold 2010 Support

EMU iShares Diverge from Euro

EAFE and Emerging iShares Stabilize at End of 2011

Don’t Forget about Canada

The Canadian Dollar versus the Euro

Canadian Markets and Commodities

How to Add the Americas to Your Foreign Portfolio

Chapter 14: The Link between Bonds and Stocks

The Two Markets Compete for Investor Funds

The Positive Correlation between Bond Yield and Stocks

Bond Yield Leads Stocks Lower during 2010 and 2011

The Falling Bond Yield Boosts Dividend-Paying Stocks

Consumer Staples and Utilities Thrive on Rising Volatility

Not All Bonds Are the Same

Some Bond Prices Can Trend in Opposite Directions

Quantitative Easing

The Impact of Quantitative Easing on Bonds and Stocks

Operation Twist

The Yield Curve

Thr Impact of Quantitative Easing on the Yield Curve

Bond Yield and Stocks Diverge at the Start of 2012

TIPS and Gold Rise Together

The Pendulum Swings Back to Stocks at the Start of 2012

The Fed Launches QE3

Chapter 15: The Link between Bonds and Commodities

One of the Traditional Relationships

Bond and Commodity Prices Normally Trend in Opposite Directions

The Inverse Bond-Commodity Link between 2003 and 2006

Why They Changed during 2007

Copper versus Corn during 2002

A Comparison of Copper and Treasury Bond Prices

The Copper Bottom during 2009 Contributed to the Bond Top

The Thomson Reuters/Jefferies CRB Index

The CRB Index/Treasury Bond Ratio

The Commodity/Bond Ratio Since 2008

The CRB/Bond Ratio Influences Stocks

The History of Commodity/Bond Ratio Influence on Stocks

The CRB/Bond Ratio Also Influences Sector Rotation

The CRB/Bond Ratio also Influences Emerging Markets

Commodity Inflation versus Bond Deflation

Commodity and Bond Links to China and Japan

Summary

Conclusion

Recap of Intermarket Principles

The New Normal in Intermarket Relationships

Fed Policy May Be Interfering with Normal Bond/Stock Relationship

The Fed Also Kept Bond Yields Low during the 1940s

Asset Allocation Strategies May Start Favoring Stocks

The Nasdaq/Bond Ratio May Be Bottoming

The Nasdaq Composite Index Hits a 12-Year High

Banks Show New Leadership

Homebuilders Bottom

Adding a New Dimension to Technical Analysis

Reading Up on Charting

StockCharts.com Chart School

Neural Networks

Looking Ahead

A Dollar Bottom Would Have a Depressing Effect on Commodities

A 40-Year Trend of the CRB Index

The Stock/Commodity Ratio Favors Stocks over Commodities

Trade trends, not opinions

About the Author

Index

ACKNOWLEDGMENTS

I would like to begin by thanking Pamela Van Giessen, long-time Executive Editor at Wiley, for guiding me through several earlier books and for encouraging me to do one more. Her successor in that role, Evan Burton, convinced me that a new generation of e-books, with beautiful color graphics and digital enhancements, lent itself extremely well to visual market analysis, and would help bring intermarket analysis to a wider audience. I’m glad he did. I would also like to thank Judy Howarth at Wiley for working so closely with me in the complicated task of putting the book together, and for making my part in doing that much easier. All of the charts in this book were done on the Stockcharts.com web site. I would like to thank the president of that organization, Chip Anderson, for creating new market indicators for my use in this book, and for providing historical market data that was extremely useful. I’ve learned from many other writers over the years. Special mention is owed to Sam Stovall, chief investment strategist for Standard & Poor’s, for his work on sector rotation throughout the business cycle. Thanks also to John Creegan Jr. for his expertise in foreign exchange trading. Also to Ted Bonanno, my agent, who helped smooth the way. Finally, I’d like to thank readers of my earlier books on intermarket analysis who encouraged me to write something more current on that exciting field. This book is for them. And, of course, for newer readers interested in intermarket analysis.

INTRODUCTION

My first book on this subject, entitled Intermarket Technical Analysis: Trading Strategies for the Global Stock, Bond, Commodity, and Currency Markets (Wiley & Sons), was published in 1991. The reason I wrote the book was to demonstrate that all global financial markets are closely linked and have an impact on each other. The book’s main thesis was that technical analysts needed to broaden their chart horizon to take these intermarket relationships into consideration. Analysis of the stock market by itself, for example, was incomplete without taking into consideration existing trends in the dollar, bond, and commodity markets. That first book suggested that financial markets could often be used as leading indicators of trends in related markets or, at the very least, could provide confirmation (or nonconfirmation) of other existing trends.