By: Tom Gentile
on September 26th, 2022
When one hears the term ‘inter market Analysis’ what does that mean?
Inter market analysis is a method of determining the strength or weakness of one or more asset class(es) or one or moresection of the financial markets relative to other related asset classes or financial markets respectively.
One thing those of you readers or followers of my education have experienced, is I do inter market analysis every week, (we, as options traders fo this more frequently, but I write up my inter market research each week.
I do this in my Tom’s Newsletter. You can find it each week usually on a Wednesday or a Thrusday.
Log in to my tools www.tomsoptiontools.com. When you first log in you will see the icon in the first panel labeled Options Trader and it says Tom’s Newsletter with an envelope character next to it.
My primary goal in options trader is to assess a market direction. Not only or the overall market, which then dictates whether I am overall bullish or bearish, but I then break down other sectors or areas of the financial markets to find strength or weakness, which then dictates how I trade option on stokcs or ETF’s on those aother areas.
Inter-Market Analysis involves Looking at how Certain Markets React in Relation to Each Other
I start out loking at what I call the Corners of the Market. I look at Equities, Bonds, the US Dollar, Commodities such as Oil and then Gold.
My representative in my writing and what I use for establishing my views on these corners are as follows:
- Equities – SPY, which is the SPDR S&P 500 ETF Trust (SPY)
- Bonds – TLT, which is the iShares 20+ Year Treasury Bond ETF (TLT)
- US Dollar – UUP, which is the Invesco DB US Dollar Index Bullish Fund (UUP)
- Commoditiy – USO, which is the United States Oil Fund, LP (USO)
- Commodity – GLD, which is the SPDR Gold Shares (GLD)
I analyze each knowing that some of these corners of the market trade in a correlated or similar fashion and others are non-correlated or they trade inverse to each other.
This sets up where I then go to look for bulilsh option trade opportunities and where I look for bearish option opportunities.
These correlations do not happen 100% of the time.
The typcial tendency is to see equities (stocks) and bonds to trade inverse to each other. When money is flowing in to one it sometimes comes at the expense of the other.
Think of it as where investors see the better value or return on or of their dollar.
If investors see the prospect of stocks selling off they may move their money to bonds as the longer-term stability and less volatility will keep the returns of their money in a better situation than their current otulook for stocks.
And vice versa.
I often see equities and oil trade more inverse or similar to each other than the relationship of equities to bonds.
Other correlations: Sometimes when equities are running higher the money going into them comes from the money investors are taking out of Gold or other precious metals.
A Robust US Dollar not a Great Thing for Investors
If the Dollar is moving higher that could adverseley affect the other corners of the market. In a nutshell, companies that make money overseas see a strong dollar as something that could potentially hurt their earnings. Weaker foregin currency gets converted in to less US currency and that hurts their earnings.
I will explain that and more in Part Two.
Visual Chart of View of Inter Market Analysis Between Equities and Gold
You can see the inverse correlation that was prevalent almost the entire first quarter fo 2022. After that both started to trade correlated to each other. And that correlation has yet to end as they are both trading lower.
App: Toms Option Tools
Market Insight articles may show images of lists of stocks meeting a variety of options parameters like Unusual Call and or Put activity or Expensive IV found on my app Toms Option Tools.
Other times I will have other charts may work to amplify my educational points.
Those options data lists, however, can be found on my app Tom’s Option Tools. Use your device to search up and download this app and get free access to the Morning Reports section of the app.
Other parts of the app are available at a premium subscription rate, but the Morning Reports Lists are yours free.
Stock and options trading has large potential rewards, but also large potential risk.
You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.
This is neither an offer to buy/sell/ or recommend a particular stock or option.
Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been actually executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with hindsight.
No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.
Disclaimer of Warranties and Liabilities Tom Gentile and TomsTradingRoom, LLC including employees, consultants, and editors (“Publisher”) cannot and do not warrant the completeness or accuracy of the content found in our areas, or its usefulness for any particular purpose.
Tom Gentile and TomsTradingRoom, LLC also make no promises that our content or the service itself will be delivered to you uninterrupted, timely, secure, or error-free. Under no circumstances will Tom Gentile and TomsTradingRoom, LLC be liable for direct, indirect, incidental, or any other type of damages resulting from your use or downloading of any content on our site.
This includes, but is in no way limited to, loss or injury caused in whole or in part by our negligence or by anything beyond our control in creating or delivering any portion of Tom Gentile and TomsTradingRoom, LLC.
You are agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that Tom Gentile and TomsTradingRoom, LLC will not be liable for any I, investment decision made, or action taken by you, or others based upon reliance on news, information, or any other material published by Tom Gentile and TomsTradingRoom, LLC.
Tom Gentile and TomsTradingRoom, LLC relies on various sources of information that we believe to be accurate and reliable. However, we make no claims or representations as to the accuracy, completeness, or truth of any material contained on our site.
Tom Gentile and TomsTradingRoom, LLC are educational portals, providing content for educational and informational purposes only. Neither Tom Gentile nor TomsTradingRoom, LLC are a broker/dealer. Investors need a broker to trade stocks and options and must meet certain requirements. All securities, futures, and investments data and ideas are offered to self-directed investors. All prices in USD unless noted otherwise.
A full disclaimer can be found here: http://www.tomgentile.com/legal_disclaimers.html.