Intermarket analysis is the study of various financial markets and the relationships they have on one another.
Just as every domino affects every other domino in the chain, every financial market affects every other financial market throughout the inter-connected world in which we live.
[VIDEO] Understanding Intermarket Analysis
For instance, if a major event occurs in the stock market, it will most likely have an effect on the bond market, the futures market and the forex market. Similarly, if a major event occurs in the forex market, it will most likely have an effect on the stock market, the bond market and the futures market.
By studying the major movements and influences in various markets, you can better understand and prepare for what is happening and what might happen in the future within the market in which you are invested.
What You Should Be Watching
As you get ready to start your intermarket analysis, you need to know a few of the key indicators you should be watching. The following are a few suggestions that should give you a broad perspective of what is happening in the global financial markets:
– The S&P 500 (index of U.S. stocks)
– The Vix (CBOE Volatility Index)
– The U.S. Dollar Index (USDX)
– Short-term interest rates—like the Federal Funds Rate
– The U.S. Treasury yield curve
– Upcoming economic announcements
– Oil prices
– LIBOR (London Interbank Offered Rate)
Conducting an Intermarket Analysis
Conducting an intermarket analysis is really not as difficult as it may sound. All you have to do is keep you eye on a few major indicators and watch how the trends are developing.
Of course, it will take some time to become familiar with the various economic and financial indicators that you should be using in your intermarket analysis and how each one relates to various markets, but it will come in time. Start with this introduction, and keep going from here.