Itech lecture 12

Question 1

What is the basic premise of intermarket analysis

Answer 1

all financial markets are linked in some way

Question 2

How are all financial markets linked?

Answer 2

Because they all are all manifestations of the economic cycle

Question 3

What are the 4 market groups in intermarket analysis

Answer 3

1) currencies
2) commodities
3) bonds
4) stocks

Question 4

**What is said about the relationship between bond and stock prices

Answer 4

Bond prices always lead stock prices

Question 5

What is phase 1 between stocks and bonds, explain

Answer 5

Bonds up, stocks down
-when economy is weak, bonds do better than stocks for a while because the earnings environment is poor

Question 6

What is phase 2 between stocks and bonds, explain

Answer 6

Bonds up, stocks up
-stocks start to move up because lower interest rate

Question 7

What is phase 3 between stocks and bonds, explain

Answer 7

Bonds down, stocks up
-economy is getting stronger, increase credit demand and improved pricing and earnings are rising

Question 8

What is phase 4 between stocks and bonds, explain

Answer 8

Bonds down, stocks down
-higher interest rates cause investors to be concerned that economic activity will slow down

Question 9

When looking at commodities, we always look at what first and why?

Answer 9

Look at gold first because it is a leading indicator and a gauge of expected inflation

Question 10

What is the better representative compared to gold?

Answer 10

the CBR index or oil

Question 11

**What is the relationship between bond prices and commodities

Answer 11

Inverse relationship

Question 12

What does rising commodity prices indicate

Answer 12

indication of economic strength and is an early inflation warning that pushes interest rates higher and thus which offers a early warning to stock traders

Question 13

If appreciation for USD in commodities goes up, what does this mean?

Answer 13

Signals a decrease in future inflation, resulting in commodities selling off, which is good for the bond and stock market

Question 14

What does a rising USD mean for commodities

Answer 14

negative for commodities since many commodities are priced in USD

Question 15

An appreciation in the CRB index means what for bond and stock market

Answer 15

generally bad for bond and stock markets as it signals increased inflation and possible increases in interest rates

Question 16

When does the inverse relationship between commodities and bonds & stocks hold true?

Answer 16

During inflationary and disinflationary periods

Question 17

When does the inverse relationship between commodities and bonds & stocks NOT hold true?

Answer 17

During deflationary

Question 18

Give the sequence of events in a disinflationary scenario for commodities, bonds and stocks

Answer 18

Commodities go down
Bonds go up
stocks go up

Question 19

Give the sequence of events in a deflationary scenario for commodities, bonds and stocks

Answer 19

Commodities go down
Bonds go down
Stocks go down

Question 20

When USD goes down, multinational earnings go…? How come?

Answer 20

Up
-because this means that products overseas are more attractive

Question 21

When USD goes up, drug stocks tend to go…? How come?

Answer 21

Up
-since most their sales are from overseas, when the market is weak they tend to outperform the other sectors as a result

Question 22

Small caps are … as impacted by currency swings as the large caps

Answer 22

not

Question 23

Increase in USD favours who

Answer 23

Small caps

Question 24

Decrease in USD favours who

Answer 24

large caps

Question 25

What is said about how bond prices and stocks prices together

Answer 25

They move in the same direction

Question 26

**Who moves first, stocks or bonds

Answer 26

Bonds

Question 27

Commodities trend in which direction compared to bond prices

Answer 27

In the opposite direction

Question 28

USD trends in which direction compared to commodities

Answer 28

In the opposite direction

Question 29

Increase in USD is good for who

Answer 29

US stocks and bonds

Question 30

Decrease in USD is bad for

Answer 30

US stocks and bonds

Question 31

What happens to bonds during periods of deflation

Answer 31

they decouple (bonds up, stocks down)