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

Summary

This lesson delves into inter-market analysis, emphasizing its importance for long-term trading strategies. It outlines the interconnectedness of bond, commodity, stock, and currency markets, highlighting how understanding these relationships can simplify fundamental analysis. The instructor advises focusing on these four major groups to gain insights, rather than sifting through overwhelming economic data, and stresses the value of these market relationships in confirming long-term analysis and building trading confidence.

Takeaways

• 🌐 Inter-market analysis is a crucial tool for understanding how different financial markets are interconnected and influence each other.
• 📈 The bond and interest rate markets, commodity markets, stock market, and currencies market are the four major groups that need to be analyzed in inter-market analysis.
• 🔗 There is no direct one-to-one correlation between these markets; they do not move in lockstep but have a certain measure of lead and lag time in their relationships.
• 💼 Focusing on these four major groups can provide insights that are as valuable as analyzing fundamental data like CPI or employment trends.
• 📉 Bonds and stocks generally move together, with a bond market rally typically supporting a bull market for stocks, and vice versa.
• 📚 Commodities typically move in the opposite direction to bond prices, with a rising bond market often leading to a falling commodity market.
• 💲 The U.S. dollar index and commodities have an inverse relationship, meaning they move opposite to each other.
• 🌾 Agricultural commodities like grains are sensitive to the strength of the U.S. dollar, affecting export demand.
• 📊 The relationship between bonds and commodities can be indicative of inflationary pressures, with a lag time of 6 to 12 months before changes in trend are reflected.
• 📈 The bond market can act as a leading indicator for the stock market's direction, with a positive correlation between the two.
• 🌐 Understanding these inter-market relationships can help confirm long-term analysis and provide a directional bias for trading, enhancing the probability of successful trades.

Q & A

What is the main focus of the January 2017 ICT mentorship lesson?

The main focus of the lesson is on inter-market analysis, discussing how different market asset classes are related and the correlations between them without the use of charts or visual aids.

Why is it important to understand the relationships between different world markets?

Understanding the relationships between world markets is crucial for comprehensive analysis, as it aids in recognizing collective movements and influences that might not be apparent without a macro understanding of global economic activities like exports.

What are the four major groups of inter-market analysis mentioned in the script?

The four major groups are bond and interest rate markets, commodity markets, the stock market, and the currencies market.

How do bond and stock markets typically move in relation to each other?

Bonds and stocks generally move together, meaning if bond prices are rallying higher, it is supportive of a bull market for stocks, and vice versa.

What is the relationship between commodity prices and bond prices?

Commodity prices and bond prices have an inverse relationship, meaning they typically move opposite to each other.

How does the U.S. dollar index relate to commodity prices?

The U.S. dollar index has an inverse relationship with commodity prices, meaning if the dollar index is moving higher, commodities as a whole should be trending lower, and vice versa.

What impact does a strong U.S. dollar have on agricultural exports?

A strong U.S. dollar can diminish the demand for exports in the form of grains and livestock, as it makes U.S. agricultural products more expensive for foreign buyers.

What is the lead and lag time for market relationships in long-term macro perspectives?

In long-term macro perspectives, there can be a lead and lag time of up to 6 to 12 months before changes in one market start to reflect in another related market.

What is the significance of the relationship between the bond market and commodities in terms of inflation?

The relationship between the bond market and commodities is significant for understanding inflationary trends, as commodities are a leading indication of inflationary environments.

How can the information from inter-market analysis be applied to different trading strategies?

Inter-market analysis can be applied to various trading strategies, including day trading, scalping, swing trading, and long-term position trading, by providing insights into market trends and helping build probabilities in the trader's favor.

What is the presenter's view on the necessity of understanding fundamental data for successful trading?

The presenter suggests that while fundamental data is important, focusing on the relationships between the major market groups can provide similar insights without the need to digest overwhelming amounts of fundamental data.