Itech lecture 12 Flashcards

1
Q

What is the basic premise of intermarket analysis

A

all financial markets are linked in some way

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2
Q

How are all financial markets linked?

A

Because they all are all manifestations of the economic cycle

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3
Q

What are the 4 market groups in intermarket analysis

A

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

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4
Q

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

A

Bond prices always lead stock prices

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5
Q

What is phase 1 between stocks and bonds, explain

A

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

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6
Q

What is phase 2 between stocks and bonds, explain

A

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

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7
Q

What is phase 3 between stocks and bonds, explain

A

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

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8
Q

What is phase 4 between stocks and bonds, explain

A

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

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9
Q

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

A

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

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10
Q

What is the better representative compared to gold?

A

the CBR index or oil

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11
Q

**What is the relationship between bond prices and commodities

A

Inverse relationship

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12
Q

What does rising commodity prices indicate

A

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

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13
Q

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

A

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

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14
Q

What does a rising USD mean for commodities

A

negative for commodities since many commodities are priced in USD

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15
Q

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

A

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

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16
Q

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

A

During inflationary and disinflationary periods

17
Q

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

A

During deflationary

18
Q

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

A

Commodities go down
Bonds go up
stocks go up

19
Q

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

A

Commodities go down
Bonds go down
Stocks go down

20
Q

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

A

Up
-because this means that products overseas are more attractive

21
Q

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

A

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

22
Q

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

23
Q

Increase in USD favours who

A

Small caps

24
Q

Decrease in USD favours who

A

large caps

25
What is said about how bond prices and stocks prices together
They move in the same direction
26
**Who moves first, stocks or bonds
Bonds
27
Commodities trend in which direction compared to bond prices
In the opposite direction
28
USD trends in which direction compared to commodities
In the opposite direction
29
Increase in USD is good for who
US stocks and bonds
30
Decrease in USD is bad for
US stocks and bonds
31
What happens to bonds during periods of deflation
they decouple (bonds up, stocks down)