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ICT Mentorship Core Content - Month 05 - How To Use Intermarket Analysis
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ICT Mentorship Core Content - Month 05 - How To Use Intermarket Analysis

Lesson 3: Inter-Market Analysis

In this lesson, the speaker discusses how to use inter-market analysis. The presentation is conceptualized thinking with no charts or exciting visuals. The focus is on understanding the relationships between different market asset classes and sectors.

Understanding World Markets

  • World markets are directly linked to one another.
  • There are correlations between unexpected markets that require a global or macro understanding of what countries do in terms of exports.
  • Understanding how these markets relate to one another will aid in your analysis.

Four Major Groups of Inter-Market Analysis

  • The four major groups of inter-market analysis are bond and interest rate markets, commodity markets, stock market, and currencies market.
  • All four groups are closely related but don't move lockstep with one another.
  • Long-term macro perspectives and analysis concepts require a certain measure of lead time and lag time for some of these market relationships.
  • Focusing on these four major groups will give us all the insights that fundamental data would ultimately give a fundamentalist.

Benefits of Using Economist Theory

  • Instead of going through fundamental data looking at things like CPI or employment trends, using economist theory can be more beneficial for long-term traders or those using long-term analysis.
  • It's challenging to stay abreast of all fundamental data points released throughout the month every single month.
  • These Market moves take a long time to develop and unfold in our charts; it takes patience.

Conclusion

In conclusion, understanding inter-market analysis requires an understanding of how world markets relate to each other. Focusing on the four major groups mentioned above can provide valuable insights for long-term traders. Using economist theory can also be beneficial when analyzing these markets.

Relationship between Bond Prices, Stocks, Commodities, Currencies

In this section, the speaker discusses the relationship between bond prices and stocks, commodities, and currencies.

Bond Prices and Stocks

  • When bond prices are rallying higher in an uptrend, it is generally supportive of a bull market for stocks. Conversely, if the bond market is in a bear market trending lower, it's going to be very hard for stocks to rally in that environment.
  • The underlying trend of the bond market moving lower will have an effect on that stock market rally. Eventually, the stock market will have to correct and get back in alignment with the overall trend of the bond market.
  • If you're a stock trader, you can use information gleaned from the bond market as an indicator that you have underlying strength in the bond market.

Bond Prices and Commodities

  • Commodities are a group of markets that move opposite to bond prices. If bonds are moving higher, commodities will be moving lower in relation to that move.
  • Grains and agriculturals are very export-sensitive. A strong dollar diminishes demand for exports in grains and livestock agricultural markets.

Bond Prices and Currencies

  • The US dollar index has an inversely related relationship with commodities. If it's trading higher or rallying, commodities as a whole should be trending lower.
  • Bonds and commodities also have an inverse relationship; if bonds trade higher or trend up, it generally has an impact on commodities moving lower.

The Relationship Between US Dollar Index And Commodities

In this section, we learn about how changes in US dollar index affect commodity prices.

US Dollar Index vs Commodities

  • The US dollar index has an inversely related relationship with commodities; they move opposite to each other.
  • If the US dollar index is trading higher, commodities as a whole should be trending lower. Conversely, if the US dollar index is trending lower or trading lower, commodities will be doing the opposite and going higher.
  • Grains and meats are very export-sensitive. A strong dollar diminishes demand for exports in grains and livestock agricultural markets.

US Dollar Index vs Stocks and Bonds

  • If the US dollar index is moving higher or rallying, it's supportive of the stock and bond market going higher.
  • If the US dollar index moves lower, it's seen with support with stocks and bonds both trending lower as well.

Commodity Currencies

  • The US dollar index has an impact on commodity currencies. If it's moving higher, this is going to be seen with commodity currencies moving lower. Conversely, if it's moving down, it's going to see a commodity currency rally or movement higher.
  • You can measure this by looking at the US dollar index versus the CRB index (commodity research bureau index).

Bond and Commodity Relationships

This section discusses the lead and lag time in a change or long-term basis for the bond and commodity relationships. It explains that it can take 6 to 12 months before you see a change in trend on the relationship between bonds and commodities.

Lead and Lag Time for Long-Term Trends

  • Commodities may turn up, and bonds may eventually turn lower as a result later on.
  • It takes a long time sometimes for the effects of interest rate changes or supply and demand factors that are really weighed in the consumption or production of Commodities as a whole.
  • Treasury bonds or t-bonds versus the crb index is what you'll be using to measure the relationship between the two.
  • The crb index is very heavily weighted with Agricultural and grain markets, so when we look at crb index, it's very heavy on soybean prices wheat prices corn prices cattle prices hog prices.

Goldman Sachs Commodity Index

  • Use Goldman Sachs commodity index when looking for energy-focused side of the marketplace.
  • Goldman Sachs industrial metal index focuses on global trends. Metals like silver Palladium platinum gold are not included; instead, Industrial Metals like zinc tin copper aluminum are included.

Summary

  • When bond yields go higher, that would be seen with bond market going lower or bond prices going lower. That means bond yields are increasing, which will push commodities up. When bond yields go down, treasury bond market prices are going higher, which will push commodities down.

Bonds vs Stock Market

This section discusses the positive correlation between bonds and the stock market. It explains that when the bond market is trending higher, it provides strength for stocks and support for it. When the bond market is trending lower, this will have a bearish effect on stocks.

Lead and Lag Time for Long-Term Trends

  • The lead in lag time in changes for long-term trends can be 6 to 12 months in duration.
  • What you see going on in the long-term trends of the bond market may take a little bit of time up to yes I say a year before you see these long-term trends start to manifest themselves in the stock market.

Deflationary Periods

  • During deflationary periods, bonds perform very well because you're actually seeing interest rate markets collapsing. With bonds going up, that's usually seen in a deflationary period; you're usually seeing bonds going higher with stocks going lower and commodities going down.

Key Inter-Market Relationships

  • When bullish dollar index, expect bearishness on gold. When bullish on gold, expect bearishness on dollar index.

Conclusion

This transcript discusses various relationships between different assets such as bonds, commodities, and stocks. It explains how they are interrelated and how their movements affect each other. The section also highlights some key inter-market relationships that investors should keep an eye on while making investment decisions.

Inter-Market Analysis

In this section, the speaker discusses how different markets are related to each other and how understanding these relationships can help traders make better decisions.

Understanding Market Relationships

  • When oil is bullish, U.S CAD tends to be bearish due to Canadian export leadership and oil exports.
  • When Dow is up or bullish, Nikkei index is also bullish. A direct relationship exists between the Dow and Nikkei indices. If the Nikkei index is down, it's bearish for the US dollar versus Japanese Yen pair.
  • When yields are down or bearish, it's generally bearish for the currency because money seeks yield.
  • When gold is bearish, it's usually bullish for US dollar versus CAD.

Confirmation of Long-Term Analysis

  • Understanding these relationships conceptually gives confirmation of long-term analysis. If a trader sees a number of these things in alignment with their long-term analysis, they're probably on the right path in terms of market direction. Rarely will there be a wide disparity with all these things not aligning; if there's a good sample size of some of these things in alignment, generally long-term analysis will be true to form and pan out in the long-term direction as expected.

Timing Long-Term Trend Trading

  • Long-term trend trading or long-term analysis and timing are some of the hardest things to time because traders need to focus on allowing a little bit more movement against their underlying entry point when trading off higher time frame charts like daily charts due to time constraints that keep them from being able to trade with a lower time frame entry.
  • Traders need to permit themselves a great deal of movement against them in terms of stop loss because their ranges are a lot larger and they require more time. However, using inter-market analysis helps build probabilities in traders' favor regardless of their trading style, whether it's day trading, scalping, short-term trading, swing trading, position trading or long-term scope.

Benefits of Knowing Market Relationships

  • Knowing these relationships helps build confidence as a trader to know that they're trading with the underlying fundamentals without requiring all the time and energy needed to go through fundamental data. The relationships between markets outlined in this presentation will take traders to the same outcome that fundamental data will give them.
  • Using the information shared in this presentation helps traders see when long-term macro trends are starting and shifting into place by studying it on a macro level. There's a great deal of value in knowing these relationships because they have a direct relationship to how markets work as a whole and how they tie together. It keeps traders out of having to look at fundamental data and builds probabilities in their favor regardless of their trading style or strategy.

The Importance of Fundamental Data

In this section, the speaker discusses how institutions such as banks, producers, manufacturers, and exporters use fundamental data to forecast trends in sales and consumption.

Using Fundamental Data

  • Institutions such as banks, producers, manufacturers, and exporters use fundamental data to forecast trends in sales and consumption.

Challenges of Keeping Up with Market Changes

  • It can be challenging for individuals to keep up with all the ever-changing things in the marketplace.
  • Looking at the price of asset classes and their relationship with one another can help individuals come to a conclusion about the geopolitical macro trend.

Conclusion

  • As a macro perspective trader, it is important to consider both fundamental data and market changes when making trading decisions.
Playlists: 2017 ICT Private Mentorship Core Content Month 05
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2017 Premium ICT Mentorship Core Content Video Lectures Audio and visuals are exactly as they were distributed in January 2017. CFTC RULE 4.41 – HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN Trading performance displayed herein is hypothetical. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance trading results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. U.S. Government Required Disclaimer – Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with money you can’t afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. Trade at your own risk. The information provided here is of the nature of a general comment only and neither purports nor intends to be, specific trading advice. It has been prepared without regard to any particular person’s investment objectives, financial situation and particular needs. Information should not be considered as an offer or enticement to buy, sell or trade. You should seek appropriate advice from your broker, or licensed investment advisor, before taking any action. Past performance does not guarantee future results. Simulated performance results contain inherent limitations. Unlike actual performance records the results may under or over compensate for such factors such as lack of liquidity. No representation is being made that any account will or is likely to achieve profits or losses to those shown. The risk of loss in trading can be substantial. You should therefore carefully consider whether such trading is suitable for you in light of your financial condition. If you purchase or sell Equities, Futures, Currencies or Options you may sustain a total loss of the initial margin funds and any additional funds that you deposit with your broker to establish or maintain your position. If the market moves against your position, you may be called upon by your broker to deposit a substantial amount of additional margin funds, on short notice in order to maintain your position. If you do not provide the required funds within the prescribed time, your position may be liquidated at a loss, and you may be liable for any resulting deficit in your account. Under certain market conditions, you may find it difficult or impossible to liquidate a position. This can occur, for example, when the market makes a “limit move.” The placement of contingent orders by you, such as a “stop-loss” or “stop-limit” order, will not necessarily limit your losses to the intended amounts, since market conditions may make it impossible to execute such orders.