Intermarket Analysis - Explained
What is an Intermarket Analysis?
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Table of ContentsWhat is an Intermarket Analysis?How Does an Intermarket Analysis Work?How Intermarket Analysis WorksImportance of Intermarket Analysis
What is an Intermarket Analysis?
The Intermarket analysis looks at how different market sectors operate in relation to other sectors. It looks at how various related asset classes determine the financial markets strengths or weaknesses. Examples of such assets include things such as bonds, currencies, stocks, and commodities. The concept was pioneered by a financial market analyst known as John J. Murphy.
How Does an Intermarket Analysis Work?
According to Murphy, those trading in the market can benefit when they look at the relationship between assets different classes. The Intermarket analysis makes it easy for investors to identify steps investment cycle, including asset classes that perform better and those that are wort-performing. Note that most analysis looks at only one asset of class. However, Intermarket analysis focuses on a number of strongly correlated asset classes. They include bonds, stocks, and commodities. By using this, you are able to expand by looking at each asset in isolation. It also enables you to look at other markets with a strong relationship to the asset under consideration.
How Intermarket Analysis Works
For instance, during the analysis of the U.S. stock market, investors can look at related markets like the commodity prices, the bond markets, and the U.S. dollar. Commodity prices, in most cases, have a direct effect on the United States stock market. So, it is possible for investors to predict the stock markets future direction through analyses of stocks and commodities. Intermarket analysis is considered an important technique. It provides investors with a sense and direction.
Importance of Intermarket Analysis
- It provides investors with important confirmations into the possible assets direction. It gives insights into the markets future direction.
- It provides valuable and long term forecasting techniques for investment business managers as well as analysts.
- It is used to determine the business cycles current progress and how it may affect different market sectors.
- It helps in giving those who trade in currencies a new edge in the growing global and interrelated financial marketplace, where the forex market plays a key role together with the commodity futures players, stock market operators, and bond traders.