Once again I am putting a few points down on intermarket relationship as mentioned by John Murphy in his book Intermarket Analysis.
The U.S. dollar trends in the opposite direction of commodities.
A falling dollar is bullish for commodities; a rising dollar is bearish.
Commodities trend in the opposite direction of bond prices.
Therefore, commodities trend in the same direction as interest rates.
Rising commodities coincide with rising interest rates and falling bond prices.
Falling commodities coincide with falling interest rates and rising bond prices.
Bond prices normally trend in the same direction as stock prices.
Rising bond prices are normally good for stocks; falling bond prices are bad.
Therefore, falling interest rates are normally good for stocks; rising rates are bad.
The bond market, however, normally changes direction ahead of stocks.
A rising dollar is good for U.S. stocks and bonds; a falling dollar can be bad.
A falling dollar is bad for bonds and stocks when commodities are rising.
During a deflation (which is relatively rare), bond prices rise while stocks fall.
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