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

Last modified by Drunk Monkey on 2022-09-15 11:25
1 00:00:12,660 --> 00:00:26,850 ICT: Welcome back, folks, this is lesson three in the January 2017 content for the ICT mentorship, gonna be discussing how to use inter market analysis. Okay,
2 00:00:26,880 --> 00:00:39,360 or inter market analysis, presentation here is going to be predominantly conceptualized thinking. So there's no charts here, it's nothing exciting, okay,
3 00:00:39,360 --> 00:00:48,930 but it's dry, useful information, but it's very, very dry. So I'm going to warn you ahead of time, say, if you're trying to do something, apart from 100%
4 00:00:48,930 --> 00:00:59,430 Attention, you want to save this lesson for a time when you can focus on the presentation very closely and take notes. Okay, so world markets are directly
5 00:00:59,430 --> 00:01:08,400 linked to one another. And it's probably a common understanding, but a lot of people don't realize exactly how they're related, what relationships exists,
6 00:01:08,610 --> 00:01:20,580 what correlations if, if you will exist between certain market asset classes, certain groups and certain sectors. There's closely related correlations between
7 00:01:20,700 --> 00:01:31,020 some unexpected markets where, without having a global macro understanding of what they do, as a country in terms of exports, you wouldn't understand what the
8 00:01:31,020 --> 00:01:42,510 relationships would be without having that information or that study behind you. So understanding them as a collective whole, or how these markets relate with
9 00:01:42,510 --> 00:01:53,250 one another, will aid in your analysis. And now since the January content is predominantly focused on 100% long term analysis, our focus needs to be on the
10 00:01:53,250 --> 00:02:05,910 relationships of these four groups. The four major groups of inter market analysis are as follows. The bond and interest rate markets, the commodity
11 00:02:05,910 --> 00:02:20,490 markets, the stock market, and the currencies market. All four of these groups together are closely related with one another. Now, they don't move lockstep to
12 00:02:20,490 --> 00:02:28,980 one another, there's not a five points higher for bonds, therefore, it's gonna be five points in another asset class or group that's going to move in
13 00:02:28,980 --> 00:02:38,820 relationship to that movement. It doesn't work like that. Since we're looking at long term macro perspective and analysis concepts, there's going to be a certain
14 00:02:38,820 --> 00:02:46,950 measure of lead and lag time for some of these market relationships. And for some of you, that's going to turn you off right away, because you're used to
15 00:02:46,950 --> 00:02:55,080 knowing this is what it's supposed to do, and therefore I'm going to expect it right now. And when you're being a long term trader, or using long term
16 00:02:55,080 --> 00:03:03,570 analysis, there's going to be a certain measure of lead time and lag time before you actually see the marketplace reflect what would be expected in terms of the
17 00:03:03,570 --> 00:03:14,070 analysis concepts. But the benefit of this is, and this is what I have gravitated towards, you can use an economist theory, which is instead of going
18 00:03:14,070 --> 00:03:21,690 through fundamental data, looking at things like CPI or employment trends, or all these fundamental data points that are released throughout the month, every
19 00:03:21,690 --> 00:03:30,390 single month. That's just too much information for me to digest. And I don't ever claim to have the mental capacity to understand that all. In fact, I've
20 00:03:30,390 --> 00:03:37,680 said many times in all of my teachings, that I don't believe that there is a realistic way of staying abreast of all those types of things. If you're wading
21 00:03:37,680 --> 00:03:47,580 through all that data. I mean, either you have to be a serious data nut for it, to me, it's over everyone's head, you just I just don't think it can be done.
22 00:03:47,970 --> 00:03:54,570 I'd love to meet someone that could do it fundamentally and prove beyond the shadow of a doubt that they can use that fundamental data to forecast future
23 00:03:54,570 --> 00:04:01,890 prices. Okay, that would be wonderful. If I could find that that would be something I would probably add to my repertoire. But in my studies, I've never
24 00:04:01,890 --> 00:04:13,290 been able to really ascertain anyone to be able to use that information, and be able to forecast with a great deal of accuracy, if you will. Now, even on a long
25 00:04:13,290 --> 00:04:26,160 term basis. Because the markets are slow to come to fruition, these these market moves take a long time to develop and unfold in our charts. It takes a great
26 00:04:26,160 --> 00:04:35,370 deal of patience. And while there's a lot of information to wade through if you go through it fundamentally, and using all those data points and and data. To
27 00:04:35,370 --> 00:04:44,520 me, if we just focus on these four major groups, it'll give us all the insights that that data will ultimately give give you a fundamentalist. So what I mean by
28 00:04:44,520 --> 00:04:51,330 that we're going to actually break down some of the relationships as we go through this mentorship. But in this teaching here, I want to give you kind of
29 00:04:51,330 --> 00:04:58,680 like an overview and some of the things that I have picked up along the way as a trader that I like to focus on when I'm looking at market relationships.
30 00:05:00,810 --> 00:05:11,130 Alright, so intermarket Analysis Overview. Now the four major groups for the market analysis, the bond market and interest rate market bonds and stocks,
31 00:05:11,160 --> 00:05:19,350 generally they move together. Okay, so if we're seeing a bond market rally, it's the bond price is not the yield. Okay, so if we're looking at the Treasury bond
32 00:05:19,350 --> 00:05:29,130 market, and the bond prices are rallying higher in an uptrend, generally that's going to be helpful and supportive of a bull market for stocks. Conversely, if
33 00:05:29,130 --> 00:05:36,270 you see the bond, the bond market in a bear market, and it's been trending lower, it's gonna be very hard for stocks to rally in that environment. Now, it
34 00:05:36,330 --> 00:05:47,430 doesn't mean that it can't rally. Okay, it just means that that underlying trend of the bond market moving lower is going to have a effect and wait on that stock
35 00:05:47,430 --> 00:05:53,850 market rally. And eventually, you're going to have to pay the piper in that stock market's going to have to correct and get back in alignment with the
36 00:05:53,850 --> 00:06:05,640 overall trend of the bond market. Commodities are a market group that move opposite to the bond prices. So if we see bonds moving higher, commodities will
37 00:06:05,640 --> 00:06:18,420 be moving lower in relationship to that move. And our third group, stock market, stocks move together with bonds. As we said, you have to constantly refer to the
38 00:06:18,450 --> 00:06:27,000 market indices for stocks and the bond market. Or if you're a stock trader, you can use the information that's gleaned from the bond market. Preferably, if
39 00:06:27,000 --> 00:06:36,330 you're going to be a stock market trader, you want to be looking at the bond market as a indicator that you have underlying strength in the bond market. So
40 00:06:36,330 --> 00:06:44,550 if bond prices are going higher in your buyer of stocks, then you can go in with a great deal of confidence that you have the fundamentals behind you that lower
41 00:06:44,550 --> 00:06:53,700 interest rates, with the bond prices rallying stocks like that, if bonds are trading lower, stocks don't like higher interest rates. And that's what's gonna
42 00:06:53,700 --> 00:07:04,410 happen if you see bond prices dropping. That means the interest rate yield directly increasing bonds do not like a high interest rate environment. And
43 00:07:04,410 --> 00:07:15,000 currencies obviously are influenced by commodities. So the effects of export sales and production in relationship to certain commodities, that's going to
44 00:07:15,000 --> 00:07:26,310 have a direct impact on specific commodities and specific currencies. Okay, well, I'll get the reverse relationship here as the US Dollar versus
45 00:07:26,310 --> 00:07:35,850 commodities. Okay, we're gonna look at this as a inversely related relationship. In other words, they move opposite to each other. That means if the dollar index
46 00:07:35,850 --> 00:07:44,670 is moving one direction, the commodity and as a group, as a whole commodities will be moving the opposite direction. So for example, specifically, US Dollar
47 00:07:44,670 --> 00:07:55,500 Index, if it's trading higher, commodities as a whole should be trending lower. And if the dollar index is trending lower, or trading lower commodities will be
48 00:07:55,530 --> 00:08:07,470 doing the opposite and going higher. Now when we're looking at commodities, okay, grains, and agricultural is our very export sensitive. So if we have a
49 00:08:08,130 --> 00:08:17,970 strong dollar, that's going to diminish the desire or demand for exports in the form of grains, and livestock agricultural markets, in other words, grains and
50 00:08:17,970 --> 00:08:33,990 meats. And if the US Dollar index shows weakness that instills an increase, or demand for grain in agricultural exports. US Dollar Index if it's going higher,
51 00:08:34,140 --> 00:08:45,990 or rallying, this is also seen with stocks and bonds moving up because it's supportive of the stock and bond market going higher. US Dollar Index if it
52 00:08:45,990 --> 00:08:57,870 moves lower, this is seen with support with stocks and bonds both trending lower as well. US Dollar Index if it's moving higher, this is going to be seen with
53 00:08:57,870 --> 00:09:10,170 commodity currencies moving lower. In Dollar Index, if it's moving down, it's going to see a commodity currency rally or movement higher. And the way you
54 00:09:10,170 --> 00:09:19,140 measure this is you can look at the US Dollar Index versus the CRB Index, which is the Commodity Research Bureau index. You can get that information on the
55 00:09:19,140 --> 00:09:27,690 internet at CRB trader.com. I'll give you some notes in the PDF file. That will include more information on all the things that you'll hear about in this
56 00:09:27,690 --> 00:09:39,150 presentation. Okay, the next one is the bonds versus commodities. And bonds and commodities have an inverse relationship as well. That means they again move
57 00:09:39,180 --> 00:09:48,450 opposite to one another. Now, if the bond prices or the treasury bond market, okay, moves up or trades higher, that generally is going to have a impact on
58 00:09:48,450 --> 00:09:56,010 commodities moving lower. And if bonds are trending or trading lower, that's going to allow commodities to rally.
59 00:09:58,440 --> 00:10:07,260 Now when we're looking at the relationship between In bonds or Treasury bonds, 30 year Treasury notes and the commodity market, what we're really focusing on
60 00:10:07,290 --> 00:10:20,370 is inflationary impact. So if we're following along and looking for signs of inflation, it's going to be noticed in the markets that are commodities,
61 00:10:20,550 --> 00:10:31,710 commodities are the leading indication for inflationary environments. So what's the lead and lag time in a change or long term basis for the bond and commodity
62 00:10:31,710 --> 00:10:41,490 relationships. Because we're dealing with a long term macro perspective on these two assets, it can sometimes take six to 12 months before you see a change in
63 00:10:41,490 --> 00:10:53,160 trend on the relationship between the bonds and the commodities. Now, that means that commodities may turn up. And bonds may eventually turn lower as a result
64 00:10:53,190 --> 00:11:03,750 later on, or bonds may turn up, and commodities may turn lower. Later on. As a result of that. It doesn't happen lockstep For step, it doesn't give you that
65 00:11:03,750 --> 00:11:11,430 immediate feedback, because it's long term macro fundamentals that are behind these big moves, especially when we're dealing with these two asset classes or
66 00:11:11,430 --> 00:11:21,870 the relationship basis. So it takes a long time, sometimes for the effects of interest rate changes, or supply and demand factors that are really weighed in
67 00:11:21,900 --> 00:11:32,700 the consumption or production of commodities as a whole. Now, treasury bonds or T bonds, versus the CRB Index is what you'll be using to measure the
68 00:11:32,700 --> 00:11:41,370 relationship between the two. But the CRB Index, let me add this to your notes. It's very heavily weighted with the agricultural and grain markets. So when we
69 00:11:41,370 --> 00:11:54,780 look at CRB Index, it's very, very heavy on soybean prices, wheat prices, corn prices, cattle prices, called prices. Okay, so you have to keep that in mind
70 00:11:54,780 --> 00:12:05,430 when you're looking at CRB Index. You want to use the Goldman Sachs Commodity Index when you're looking for the energy focused side of the marketplace. In
71 00:12:05,430 --> 00:12:17,640 other words, it's heavily weighted on energy. And you want to weigh that against the bond market. And the Goldman Sachs industrial metal index, and this is for
72 00:12:17,640 --> 00:12:31,740 focus on global trends. And it's not meant for metals like silver, palladium, platinum, gold, okay, these metals are like zinc, tin, copper, aluminum, they're
73 00:12:31,740 --> 00:12:43,200 industrial metals. So they're heavily sensitive to global trends and big, sensitive 10 tendencies in the marketplace around the world where if there's a
74 00:12:43,200 --> 00:12:55,470 big demand for industrial metals, then you'll see it in this index. If there's not, there's also going to be evidence of that in this index as well. And in
75 00:12:55,470 --> 00:13:05,340 summary, bond yields when they're going higher, that would be seen with the bond market going lower, or the bond price is going lower, that means bond yields are
76 00:13:05,340 --> 00:13:16,710 increasing, and that's going to push commodities up. And when bond yields are going down, that means the treasury bond market prices are going higher, that's
77 00:13:16,710 --> 00:13:27,600 going to push commodities down. Okay, we're gonna look at the bonds versus the stock market. Now. This has a positive correlation, that means they move in the
78 00:13:27,600 --> 00:13:38,280 same direction. And obviously, it means when the bond market is trending higher or trading higher, that's going to provide strength for stocks and support for
79 00:13:38,280 --> 00:13:50,280 it. Then when the bond markets trending or moving lower, this will have an effect that's bearish on stocks. The bond market or the treasury bond or 30 year
80 00:13:50,280 --> 00:14:03,120 benchmark acts as a leading indicator for stock direction to lead lag time in changes for long term trends, again, can be six to 12 months in duration. That
81 00:14:03,120 --> 00:14:13,860 means 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
82 00:14:13,860 --> 00:14:16,200 trends start to manifest themselves in the stock market.
83 00:14:19,020 --> 00:14:27,840 Now there's one caveat with this. Okay. When there's deflationary periods, that means when prices are decreasing, and this is a rarity doesn't happen a lot. We
84 00:14:27,840 --> 00:14:39,660 actually saw this in the latter part of 1998. It was it was indicated in the markets that there was potentially that happening. But when this occurs, the
85 00:14:39,660 --> 00:14:48,480 bonds performed very well, because you're actually seeing the interest rate markets collapsing. But with bonds going up, that's usually seen in a
86 00:14:48,480 --> 00:14:58,500 deflationary period. You're usually seeing bonds going higher the bond prices or Treasury bonds, price going higher, with stocks going lower and commodities
87 00:14:58,500 --> 00:15:07,170 going down. Like I say it's a rarity that ever happens, but usually, we're not ever really going to see a deflationary period that can imagine anytime soon.
88 00:15:08,670 --> 00:15:16,350 Okay, finally we're going to look at some key intermarket relationships. Okay, when you're bullish Dollar Index, you're going to be expecting bearishness on
89 00:15:16,350 --> 00:15:30,030 gold. bullishness on gold, you're gonna be expecting Ozzie New Zealand to be bullish because of their nature as a gold exporter. When oil was bullish, you're
90 00:15:30,030 --> 00:15:46,050 gonna be bearish on us CAD as of the Canadian export leadership and oil exports. Dow when it's up or bullish, that's Nikkei index is bullish as well, to the
91 00:15:46,050 --> 00:15:57,450 direct relationship to the Dow Nikkei. And when Nikkei index is down, that's gonna be bearish for the US Dollar versus Japanese yen pair. And generally, when
92 00:15:57,450 --> 00:16:09,810 yields are down or bearish, that's going to be bearish for the currency. Because money seeks yield. And when gold is bearish, that's usually bullish for US
93 00:16:09,810 --> 00:16:22,050 Dollar versus CAD. And finally, by having an understanding of all these relationships as a whole, conceptually, they give you confirmation of long term
94 00:16:22,050 --> 00:16:33,180 analysis, the relationships between all of them, if you're seeing a number of these things in alignment, with your long term analysis, you're probably on to
95 00:16:33,810 --> 00:16:41,820 the right path, you're on what you're looking at the right direction in the marketplace. Rarely will you see a wide disparity with all these things not
96 00:16:41,880 --> 00:16:50,790 aligning, if you have a good sample size of some of these things in alignment, generally, your long term analysis is probably going to be true to form it'll
97 00:16:50,790 --> 00:17:01,200 probably pan out in their long term direction like you think it will. The problem is timing, long term trend trading or long term analysis. And timing are
98 00:17:01,560 --> 00:17:11,490 just in my opinion, some of the hardest things to time, because it's hard to get traders to focus on allowing a little bit more movement against their underlying
99 00:17:11,880 --> 00:17:25,620 entry point. What I mean by that is because you're trading on higher timeframe charts, it's probably because of your your home life, your time constraints that
100 00:17:25,620 --> 00:17:34,710 keep you from being able to trade with a lower timeframe entry, so you're forced many times to trade off of the daily chart, and you're going to execute off of
101 00:17:34,710 --> 00:17:43,320 the daily chart, you're going to have to permit yourself a great deal of movement against you in terms of a stop loss, because your the ranges are a lot
102 00:17:43,320 --> 00:17:52,500 larger, and you're gonna have to require a lot more time. But even with that said, if you're going to be using these points of information and in
103 00:17:52,500 --> 00:17:54,840 relationships with intermarket analysis,
104 00:17:56,130 --> 00:18:03,900 it's going to help you in any and all facets of trading. Regardless if you're day trading, scalping, short term trading, swing trading, or position trading in
105 00:18:03,900 --> 00:18:14,760 long term scope, it's beneficial to know these things, and it helps build probabilities in your favor. And again, nothing in here equates to 100% of
106 00:18:14,760 --> 00:18:25,020 shorting. There's absolutely no guarantee that nothing out there can't change on the drop of a hat, which you think you see in the charts could always be wrong,
107 00:18:25,020 --> 00:18:33,000 because there's always a human element that's always involved here, the the analyst is you. But I think if you were to spend some time going over the
108 00:18:33,000 --> 00:18:43,110 relationships that's gone through this presentation, if you spend that time, look at it on a macro level, you'll see that there's a great deal of value in
109 00:18:43,110 --> 00:18:55,650 knowing these relationships. And because they are leading you to a long term trend following directional bias, using higher timeframe daily charts. It will
110 00:18:56,010 --> 00:19:05,400 give you confidence as a trader to know that you're trading with the underlying fundamentals. And you don't really require all that time and energy and and
111 00:19:05,610 --> 00:19:16,740 diligence needed to go through fundamental data. The relationships between these markets, as we outlined in this presentation, will take you to the same outcome
112 00:19:16,770 --> 00:19:26,400 that fundamental data will give you just like the relationships here will sometimes lag, that same lagging effect that happens in the fundamental data. I
113 00:19:26,400 --> 00:19:33,090 knew this much about fundamental data, just because the fundamentals suggest something should be bullish doesn't mean tomorrow it's going to go straight up.
114 00:19:33,690 --> 00:19:41,670 Okay, there's going to be time that has to be built in for that market to start building in a bullish tendency and then it'll start to move higher, but long
115 00:19:41,670 --> 00:19:49,590 term macro trends. Okay, you can see when they're starting and shifting and moving into place by using the information that was shared in this presentation,
116 00:19:49,680 --> 00:19:59,880 so again, study it, believe me when I tell you the information in this is worth its weight in gold. It's not something that is sexy is not a lot of charts,
117 00:19:59,880 --> 00:20:09,180 where I can show you Judas swings and patterns and all this and that. But it's real information that has a direct relationship to how the markets work as a
118 00:20:09,180 --> 00:20:16,530 whole, how they tie together, and it keeps you out of having to look at fundamental data. And if there's anything else that you know, you can't
119 00:20:17,070 --> 00:20:24,660 associate with in terms of value, that's enough. There's so many things out there, you would be wasting my opinion, your time, you're going through all that
120 00:20:24,660 --> 00:20:31,320 data. And when you could just simply see what price is telling you because price and all these asset classes together as a whole will reflect what the
121 00:20:31,320 --> 00:20:39,720 fundamentals are actually doing. Because trained accredited staff, it these big institutions, banks, producers, manufacturers and exporters, they're using real
122 00:20:39,720 --> 00:20:48,210 fundamental data. They have people that are trained accredited, and they're able to use that information to forecast trends in sales and consumption, all those
123 00:20:48,210 --> 00:20:56,790 types of things. And they make their business plans around those those data points. I can't keep abreast of all that stuff. There's too many things that's
124 00:20:56,790 --> 00:21:05,280 going on in my own personal life let alone you to keep up with all the ever changing things in the marketplace. So if I can look at the price of these asset
125 00:21:05,280 --> 00:21:13,320 classes and the relationship between the off of all four of them in concert with one another. I will just like you will come to the conclusion of what the
126 00:21:13,440 --> 00:21:26,130 geopolitical macro trend and dare I say it fundamental perspective is on the market as a macro perspective trader. Until next time, wish good luck and good
127 00:21:26,130 --> 00:21:26,460 trading.