A New Direction. CRB Index. Dow Industrials. Having examined the various intermarket relationships in isolation, let's put them all back together again. This chapter will also review some of the general principles and guidelines of intermarket analysis. | 252 THE MYTH OF PROGRAM TRADING FIGURE THE FOUR SECTORS OF THE AMERICAN MARKETS DURING 1987. THE INTERMARKET PICTURE GOING INTO THE SECOND HALF OF 1987 WAS BEARISH FOR EQUITIES-A FALLING DOLLAR RISING COMMODITIES AND A COLLAPSING BOND MARKET. MANY OBSERVERS MISTAKENLY BLAMED THE STOCK MARKET CRASH ON PROGRAM TRADING. Treasury Bonds 110 108 106 104 102 100 98 96 94 92 . Dollar 1 87 8 87 J1-------1 - ----L. 1-16 3-30 6-10 8-20 10-30 CRB Index 1 87 8 87 1-----1I__I-----L 235 230 225 220 215 210 205 200 1-16 3-30 6-10 8-20 10-30 100 95 90 85 80 75 1-16 3-30 6-10 8-20 10-30 Dow Industrials 2600 2400 2200 2000 1800 1600 1-16 3-30 6-10 8-20 10-30 10 30 87 buying during declines. In other words telling us that program trading is present tells us nothing. It states the obvious. What s worse reporting on program trading as a primary market moving force masks the real reasons behind a stock market trend. It also gives the false impression that program trading actually causes the move when in reality program trading is usually a reaction to intermarket pressures. A better understanding of how the financial markets are constantly interacting may help dispel some of the paranoia concerning program trading. It may also prove helpful in regulatory attempts to correct any abuses in the practice. 15 A New Direction Having examined the various intermarket relationships in isolation let s put them all back together again. This chapter will also review some of the general principles and guidelines of intermarket analysis. Although the scope of intermarket comparisons can seem intimidating at times a firm grasp of a few basic principles can go a long way in helping to comprehend so many market forces continually interacting with each other. The main purpose in this chapter will be to summarize what intermarket analysis is and to show why this type of analysis represents a new and necessary direction in technical work. INTERMARKET TECHNICAL ANALYSIS- A MORE OUTWARD FOCUS
