studying intermarket relationships is great. I do it religiously. But at end of day, u can't over think it, just trade whats in front of u
— J.C. Parets (@allstarcharts) June 12, 2015
My favorite example of the relative uselessness of inter-market ratios on a macro level was in the rates trade groups at the start of 2015.
Utilities relative strength broke a three year downtrend line just as we reached a climactic top in Long Term Treasury ETF TLT.
If you made a trade off this breakout you'd have a quick gain. If you considered the long term nature of the breakout to be a sign of further out-performance and held your utilities positions, you would've lost your gains.
If you would've interpreted the breakout as the start of the 'next leg' of the yield chase(I did), your reputation would be wrecked in a month.
It's also worth noting these relationships are always changing over time and adding layers of complexity to market analysis. If you read John Murphy's inter-market books, you'll see relationships changing all the time due to different circumstances.
This is probably just a function of the market's inability to forecast these unknowable evolving factors. That said, it's not like inter-market analysis is completely useless. It just has notable limits.
Thanks for reading!
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