Intermarket Analysis View Based on Options Analysis

Tom Gentile

Posted in Daily Report

By: Tom Gentile on April 28th, 2022 • 3 mins read

Intermarket Analysis is where one analyzes more than one related class of assets – such as stocks, bonds, commodities, and / or currencies.

Analysis like this can either help determine the strength or weakness of the asset class being considered.

The man given credit for introducing this concept is John Murphy, a financial market analyst who wrote about this in his book, “Trading with Intermarket Analysis.”

It helps one ascertain an anticipated future direction on these different asset classes or what I call a ‘Corner’ of the market. Corners of the market such as stock, bonds, and commodities.

Why is Intermarket Correlations Important

This type of analysis is helpful in that it could provide insight into the future direction of financial markets.

It can either help provide confirmation a specific asset class or corner of the market as I like to call them (stocks, bonds, commodities)  and its probable direction is looking to go higher or lower. If an index representing equities like the S&O 500 is trading higher and you see that the oil stocks trade in correlation to the S&P 500 one could anticipate higher prices in oil so long as the overall larger market does.

With an analysis or assessment of two different corners of the market it could help with confirmation of where money may be flowing in to and out of each.

Market Correlations: Positive and Negative

Correlations are where you study two or more corners of the market and see how well they trade in relation to each other. If they correlate it means they trade in the same fashion. Or do they trade inverse or opposite direction of each other.

Positive Correlation: Positive correlation means the two variables tend to move in tandem. They trade in a lock-step fashion or direction.

Negative Correlation: Negative correlation, or what’s called an inverse correlation, is where the two or more corners trade inverse or in an opposite direction.

Take a look at the Morning Reports Data

If a day like today where the day was very bullish, and the markets closed at or near its highs it could be a signal money is flowing into equities.

And since equities and Gold tends to trade inverse or they have an Inverse Correlation to each other you would not be surprised when you see options on GOLD end up on the Unusually High Put Option Volume list. Put options are a connotation that the security is anticipated to go down.

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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.