to study the intra-day activity that tookplace that morning in the financial markets following the release of an unemploymentreport, and how those events were reported by a leading news service.At 8:30 A.M. (New York time), the March unemployment report was released andlooked to be much weaker than expected. U.S. non-farm payroll jobs in March wereup 26,000—a much smaller figure than economists expected. Since the report signaled economic weakness, the bond market rallied sharply while the dollar slumped.The weak dollar boosted gold. Stocks benefitted from the strong opening in bonds.Some of the morning's headlines produced by Knight-Ridder Financial News read asfollows:—8:57 A.M.... Dollar softens on unexpectedly weak jobs data—9:08 A.M.... Bonds surge 16/32 on weak March jobs data— 10:26 A.M.... Jun gold up 3.2 dollars...— 10:27 A.M.... US Stock Index Opening: Move higher, follow bonds...
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THE MYTH OF PROGRAM TRADING-11:07 A.M.... CBT Jun T-bonds break to 92 18/32...—11:07 A.M— US stock index futures slide as T-bonds drop...— 11:10 A.M— Dow down 19 at 2701 amid sell programs, extends loss—11:32 A.M— W. German Credit Review: Bonds plunge...-11:33 A.M.... CBT/IMM Rates: Bonds plunge; Bundesbank report cited
— 11:44 A.M.... NY Stocks: Dow off 15; extends loss on sell-programsThe intermarket linkages among the four market sectors can be seen in the morning's trading. The dollar weakened and gold rallied. Bonds rallied initially and pulledstocks higher. Bonds then tumbled, pulling stock index futures down with them. Theresulting selloff in stock index futures activated sell programs, which helped pullthe Dow lower. As the headlines at 11:32 and 11:33 state, one of the reasons for theplunge in bonds at mid-morning was a plunge in the German bond market. The stockmarket plunge was the result of a plunge in the U.S. bond market, which in turn waspartially caused by a sharp selloff in the German bond market. A selloff in the dollararound mid-morning was also a bearish factor.The two headlines at 11:10 and 11:44 cite "sell programs" as the Dow was falling.These two headlines are misleading if they are read out of context. They seem toindicate that the sell-programs were causing the stock market selloff when the sharpslide in the bond market was the main reason why the stock rally faltered. Fortunately,the Knight-Ridder Financial News service provided plenty of other information toallow the reader to understand what was really happening and the reasons why itwas happening. Not all financial reports are as thorough.Sometimes the financial media, under pressure to give quick answers, picks upthe "sell-program" headlines and ignores the rest. It's easy to see how someone scanning the headlines can focus on the sell-programs and not understand everything elsethat is happening. There is also a disturbing tendency in some sectors of the financialmedia to focus on sell programs when the Dow is falling, while forgetting to mentionbuy programs when the Dow is rising.
A VISUAL LOOK AT THE MORNING'S TRADING
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FIGURE 14.1AN INTRA-DAY COMPARISON OF STANDARD & POOR'S 500 STOCK INDEX FUTURES (TOPCHART) AND U.S. DOLLAR INDEX FUTURES (BOTTOM CHART) ON THE MORNING OF APRIL 6,1990. BOTH MARKETS FELL TOGETHER JUST AFTER 10:00 IN THE MORNING AND BOTTOMEDTOGETHER ABOUT AN HOUR LATER. STOCK MARKET MOVES ON A MINUTE-BY-MINUTE BASISCAN OFTEN BE EXPLAINED BY WATCHING MOVEMENTS IN THE DOLLAR.June S&P 500 Futures
A VISUAL LOOK AT THE MORNING'S TRADING
Figures 14.1 and 14.2 show the price activity in the dollar, bonds, and stocks duringthe same morning and provide a picture of the events that have just been described.Figure 14.1 compares the June Dollar Index (bottom chart) to the June S&P 500 futuresindex from 8:30 A.M. (New York time) to noon. Notice how closely they track eachother during the morning. After selling off initially, the dollar rallied until about10:00 before rolling over to the downside again. The June S&P contract weakened atabout the same time. Both markets bottomed together after 11:00.Figure 14.2 compares the June bond contract (upper chart) to the June S&P 500futures contract (bottom chart). The bond market had already peaked before the stockindex futures started trading (9:30 A.M., New York time). Bonds started to bounceagain around 9:30 and rallied to just after 10:00. Bond and stock index futures startedto weaken around 10:15. Both markets also bottomed together just after 11:00 (alongwith the dollar). The plunge in the bond market around 11:00 was partially causedby the collapse in the German bond market (not shown).The moral of the preceding exercise was to demonstrate how closely the financialmarkets are linked on a minute-by-minute basis. The stock market is heavily influenced by events in surrounding markets, most notably the dollar and bonds. To fully
understand why the stock market suddenly dropped at 10:00 on the morning of April6 and then bottomed at 11:00, the trader had to be aware of what was happening inthe bond market and the dollar (not to mention gold and the other commodities).Those who didn't bother to monitor the bond and dollar futures that morning couldn'thave possibly understood what was happening. (Figures 14.3 and 14.4 show stockindex trading during the entire day of April 6. Figure 14.5 shows the entire week'strading.)Those who choose not to educate themselves in these lightning-fast intermarketlinkages are doomed to fall back on artificial reasons such as sell-programs and program trading, instead of the real reasons having to do with activity in the surroundingmarkets. Those whose job it is to report on the activity in the financial markets ona daily basis owe it to their clients to dig for the real reasons why the stock marketmoves up and down and to stop going for the quick and easy answers (see Figures14.6 through 14.8).
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FIGURE 14.2AN INTRA-DAY COMPARISON OF S&P 500 STOCK INDEX FUTURES (BOTTOM CHART) ANDTREASURY BOND FUTURES (TOP CHART) DURING THE SAME MORNING (APRIL 6). MOMENTARY SHIFTS IN STOCK INDEX FUTURES (WHICH AFFECT THE STOCK MARKET) ARE HEAVILYINFLUENCED BY ACTIVITY IN THE BOND MARKET. NOTICE THE PLUNGE IN BOTH MARKETSAROUND 11:00 A.M. SUDDEN STOCK MARKET MOVES THAT ARE BLAMED ON PROGRAMTRADING CAN USUALLY BE EXPLAINED BY INTERMARKET LINKAGES.
A VISUAL LOOK AT THE MORNING'S TRADING
FIGURE 14.3A COMPARISON OF S&P 500 FUTURES (TOP CHART) AND THE DOW INDUSTRIALS ON APRIL6, 1990. BOTH INDEXES BOTTOMED AROUND 11:00 (ALONG WITH THE BOND MARKET)AND RALLIED THROUGH THE BALANCE OF THE DAY. ALTHOUGH BOTH INDEXES TRENDTOGETHER, STOCK INDEX FUTURES USUALLY LEAD THE DOW BY A FEW SECONDS AND AREQUICKER TO REACT TO INTERMARKET FORCES.S&P 500 Futures-One Day's Trading
June Treasury Bond Futures
Dow IndustrialsJune S&P 500 Futures
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FIGURE 14.4A COMPARISON OF S&P 500 FUTURES (TOP CHART) AND THE S&P 500 CASH INDEX (BOTTOMCHART) ON APRIL 6. ALTHOUGH THE FUTURES CONTRACT SHOWS MORE VOLATILITY, THEPEAKS AND TROUGHS ARE SIMILAR. PROGRAM TRADING IS ACTIVATED WHEN THE FUTURESAND CASH INDEX MOVE TOO FAR OUT OF LINE.(STOCK INDEX FUTURES TRADE 15 MINUTESLONGER THAN THE CASH INDEX.)S&P 500 Futures-One Day's Trading
FIGURE 14.5A COMPARISON OF S&P 500 FUTURES (UPPER LINE) AND THE S&P 500 CASH INDEX (BOTTOMLINE) DURING THE FIRST WEEK OF APRIL 1990. NOTICE HOW SIMILAR THE TWO LINES LOOK.ARBITRAGE ACTIVITY (PROGRAM TRADING) KEEPS THE TWO LINES FROM MOVING TOO FARAWAY FROM EACH OTHER. PROGRAM TRADING DOESN'T ALTER THE EXISTING TREND BUTMAY EXAGGERATE IT.
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THE MYTH OF PROGRAM TRADING
FIGURE 14.6A COMPARISON OF THE FOUR MARKET SECTORS- THE CRB INDEX (BOTTOM LEFT), TREASURY BONDS (UPPER LEFT), THE U.S. DOLLAR (UPPER RIGHT), AND THE DOW INDUSTRIALS(LOWER RIGHT) DURING ONE TRADING DAY (MARCH 29, 1990). ONE LEADING NEWSPAPERATTRIBUTED THE SELLOFF IN THE STOCK MARKET TO PROGRAM TRADING. THE MORE LIKELYREASONS WERE THE SHARP SELLOFF IN THE DOLLAR AND BONDS AND THE SHARP RALLYIN COMMODITIES. INTERMARKET LINKAGES CAN BE SEEN EVEN ON INTRA-DAY CHARTS.Treasury Bond Futures Intra-Day Tic Chart
SUMMARY
251
FIGURE 14.7THE COLLAPSE IN THE JAPANESE STOCK MARKET DURING THE FIRST QUARTER OF 1990WAS INITIALLY BLAMED ON PROGRAM SELLING. MORE CONVINCING REASONS WERE THECOLLAPSE IN THE JAPANESE YEN AND THE JAPANESE BOND MARKET. BLAMING PROGRAMTRADING FOR STOCK MARKET DECLINES USUALLY MASKS THE REAL REASONS.Japanese Yen
Nikkei 225 Index
U.S. Dollar Index Futures
Japanese BondsCRB Index
Dow Industrials
SUMMARY
This chapter discusses the myth of program trading as the primary cause of stockmarket trends on a day-to-day and minute-by-minute basis, and shows that what isoften attributed to program trading is usually a manifestation of intermarket linkagesat work. This discussion is not meant as a defense of program trading. Nor is it meantto ignore the role program trading can play in exaggerating stock market declinesonce they start. There are many legitimate concerns surrounding the practice of program trading which need to be addressed and corrected if necessary. However, a lotof misunderstanding exists concerning the role of program trading on a day-to-daybasis. Whenever the stock market rallies, it is almost a certainty that program buyingis present. It is equally certain that program selling usually takes place during a stockmarket selloff. Telling us that program trading is present at such times is similar totelling us that there is more buying than selling during rallies or more selling than
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THE MYTH OF PROGRAM TRADING
FIGURE 14.8THE FOUR SECTORS OF THE AMERICAN MARKETS DURING 1987. THE INTERMARKET PICTUREGOING INTO THE SECOND HALF OF 1987 WAS BEARISH FOR EQUITIES-A FALLING DOLLAR,RISING COMMODITIES, AND A COLLAPSING BOND MARKET. MANY OBSERVERS MISTAKENLYBLAMED THE STOCK MARKET CRASH ON PROGRAM TRADING.U.S. Dollar
Treasury Bonds
A New Direction
CRB Index
Dow Industrials
Having examined the various intermarket relationships in isolation, let's put them allback together again. This chapter will also review some of the general principles andguidelines of intermarket analysis. Although the scope of intermarket comparisonscan seem intimidating at times, a firm grasp of a few basic principles can go a longway in helping to comprehend so many market forces continually interacting witheach other. The main purpose in this chapter will be to summarize what intermarketanalysis is and to show why this type of analysis represents a new and necessarydirection in technical work.INTERMARKET TECHNICAL ANALYSISA MORE OUTWARD FOCUS
buying during declines. In other words, telling us that program trading is present tellsus nothing. It states the obvious.What's worse, reporting on program trading as a primary market moving forcemasks 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 tradingis usually a reaction to intermarket pressures. A better understanding of how thefinancial markets are constantly interacting may help dispel some of the paranoiaconcerning program trading. It may also prove helpful in regulatory attempts to correct any abuses in the practice.
As stated at the outset of the book, technical analysis has always had an inward focus.Primary emphasis has always been placed on the market being traded, whether thatmarket was equities, Treasury bonds, or gold. Technicians 'tried not to be influencedBy outside events so as not to cloud their chart interpretation. Hopefully, the previouspages have shown why that attitude is no longer sufficient.No market trades in isolation. The stock market, for example, is heavily influenced by the bond market. In a very real sense, activity in the bond market acts as aleading indicator for stocks. It's hard to imagine stock traders not taking bond marketactivity into consideration in their technical analysis of the stock market. Intermarketanalysis utilizes price activity in one market, such as Treasury bonds, as a technical indication of the likely direction prices will trend in another market such as thestock market. This approach redefines the meaning of a technical indicator. Insteadof just looking at internal technical indicators for a given market, the intermarketanalyst looks to the price action of related markets for directional clues. Intermarketwork expands the scope and the definition of technical analysis and gives it a moreoutward focus.The bond market is heavily influenced by commodities. It has been shown whyit's dangerous to analyze the bond market without keeping an eye on commodities.253
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A NEW DIRECTION
During the latter part of 1989 and early 1990, many traders were looking for lowerinterest rates. They failed to consider the rising CRB Index which was signaling higherinterest rates and lower bond prices. The collapse in bond prices during the first halfof 1990 was a surprise only to those who weren't watching the commodity markets.The tumble in bond prices in the spring of that year also put downward pressureon stock prices. Since commodities and bonds are so closely linked, analysis of thecommodity markets is almost a requirement for a thorough analysis of the bondmarket.Finally, there is the U.S. dollar. The inflation problem that surfaced in early 1990as commodity prices rose was the direction result of a collapse in the U.S. dollarduring the fourth quarter of 1989. Weakness in the U.S. currency reawakened inflationpressures as 1989 ended, pushing commodity prices higher. Interest rates rose alongwith commodities, putting downward pressure on the bond market. Falling bondprices put downward pressure on U.S. stocks. Technical analysis of the U.S. dollar(currencies), the CRB Index (commodities), Treasury bonds (interest rates), and stocksmust always be combined.THE EFFECT OF GLOBAL TRENDS
Global forces were also at work as the new decade began. Global interest rates weretrending higher, putting overseas bond markets under pressure. Falling bond marketsbegan to take their toll on the Japanese and British equities markets. During the firstquarter of 1990, the Japanese stock market lost almost a third of its value, owing to acollapsing yen and falling Japanese bond prices—an example of classic intermarketanalysis. Falling bond prices (owing to rising inflation fears) also pushed British stockprices lower. Bearish global forces in bonds and stocks were just beginning to impacton the American stock market in the spring of 1990. Surging oil prices during thesecond half of 1990 pushed global bond and stock markets into more serious bearmarket declines.TECHNICAL ANALYSTS AND INTERMARKET FORCES
What it all means is that technical analysts have to understand how these intermarketlinkages work. What does a falling dollar mean for commodities? What does a risingdollar mean for U.S. bonds and stocks? What are the implications of the dollar forthe gold market? What does a rising or a falling gold market mean for the CRB Indexand the inflation outlook? What do rising or falling commodities mean for bonds andstocks? And what is the impact of rising or falling Japanese and British bond andstock markets on their American counterparts? These are the types of questions technical analysts must begin to ask themselves.To ignore these interrelationships is to cheat oneself of enormously valuableprice information. What's worse, it leaves technical analysts in the position of notunderstanding the external technical forces that are moving the market they are trading. The days of following only one market are long gone. Technical analysts haveto know what's happening in all market sectors, and must understand the impactof trends in related markets all over the globe. For this purpose, technical analysisis uniquely suited because of its reliance on price action. For the same reason, itseems only logical that technical analysts should be at the forefront of intermarketanalysis.
COMMODITIES AS THE MISSING LINK
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KEY INTERMARKET PRINCIPLES AND RELATIONSHIPS
Some of the key intermarket principles and relationships that we've covered in thepreceding chapters are:•••••••••••••••
All markets are interrelated.No market moves in isolation.Chart action in related markets should be taken into consideration.Technical analysis is the preferred vehicle for intermarket work.Intermarket analysis adds a new dimension to technical analysis.The four key sectors are currencies, commodities, bonds, and stocks.The U.S. dollar usually trends in the opposite direction of the gold market.The U.S. dollar usually trends in the opposite direction of the CRB Index.Gold leads turns in the CRB Index in the same direction.The CRB Index normally trends in the opposite direction of the bond market.Bonds normally trend in the same direction as the stock market.Bonds lead turns in the stock market.The Dow Utilities follow the bond market and lead stocks.The U.S. bond and stock markets are linked to global markets.Some stock groups (such as oil, gold mining, copper, and interest-sensitive stocks)are influenced by related futures markets.
INTERMARKET ANALYSIS AND THE FUTURES MARKETS
Heavy emphasis has been placed on the futures markets throughout the book. This ismainly due to the fact that the evolution of the futures markets during the 1970s and1980s has played a major role in intermarket awareness. Whereas the stock marketworld has remained relatively static during the past two decades, the futures marketshave expanded to include virtually every financial sector—currencies, commodities,interest rate, and stock index futures. Global futures markets have grown dramatically.The price discovery mechanism provided by instant quotations in the futures marketsall over the world and the quickness with which they interact with each other haveprovided a fertile proving ground for intermarket work.Those readers unfamiliar with the specific workings of the futures markets neednot be concerned. Cash markets exist in every sector studied in this book. As anillustration, bond futures and stock index futures trend in the same direction as theirrespective cash markets (sometimes with a slight lead time). The futures marketsused in this book can be viewed simply as proxies for their respective cash markets.The use of futures markets in the various examples doesn't in any way diminish theusefulness and relevance of intermarket analysis in the respective cash markets.COMMODITIES AS THE MISSING LINKAnother theme running throughout the book has been the important role played bythe commodity markets in the intermarket picture. This is due to the belief thatcommodities have been the least understood and the least appreciated of the four
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sectors. The biggest breakthrough in intermarket analysis lies in the recognition ofthe close linkage between commodity markets, measured by the Commodity ResearchBureau (CRB) Index, interest rates, and bond prices.By establishing this link, commodity prices also becomes linked with activity inthe currency and stock markets. It's not possible to analyze the other three sectors froman intermarket perspective without considering the key role play by commodities because of the link between commodity price action and inflation. Greater appreciationof the role played by commodities and their generally negative correlation to the threeother financial sectors may encourage the view of commodities as an asset class andas a potential vehicle for tactical asset allocation.Admittedly, most of the emphasis in these pages has centered on the past twentyyears. This raises the inevitable question as to whether or not these studies havereached back far enough in time. It also raises the question of whether these linkagesare a new phenomenon and whether they are likely to continue. How far back inhistory can or should the markets be researched for intermarket comparisons? Thisbook's focus on the past two decades is due largely to reliance on the futures markets,most of which were introduced during that period, and the belief that a lot haschanged during the past twenty years in the way we view the world markets. Let'sconsider some of those changes.Prior to 1970, the world had fixed exchange rates. Trends in the U.S. dollar andforeign currencies simply didn't exist. Given the important role played by the currencymarkets today, it's impossible to measure their possible impact prior to 1970. Goldwas set at a fixed price and couldn't be owned by Americans until the mid-1970s.Gold's relationship with the dollar and its role as a leading indicator of inflation wasimpossible to measure prior to that time since its price didn't fluctuate. The price ofoil was regulated until the early 1970s. All of these parts of the intermarket puzzleweren't available before 1970.Gold futures were introduced in 1974 and oil futures in 1983. Currency futureswere started in 1972. Their impact on each other could only be measured from thosepoints in time. Futures contracts in Treasury bonds, Treasury Bills, and Eurodollarswere developed later in the 1970s. Futures markets in stock index futures, the U.S.dollar, and the CRB Index weren't introduced until the 1980s. When one considershow important each of these markets is to the intermarket picture, it can be seen whyit's so hard to study intermarket analysis prior to 1970. In most cases, the data simplyisn't available. Where the data is available, it's only in bits and pieces.COMPUTERIZATION AND GLOBALIZATIONThe trends toward computerization and globalization in the past two decades havealso made a major contribution to expanding our global perspective. Thanks to thesetwo trends, the world seems much smaller and much more interdependent. Mostpeople didn't watch the overseas markets ten years ago and didn't care what they weredoing. Now many begin the day with quotes from Tokyo and London. The entrance ofcomputers enabled traders to view these markets on terminal screens and watch themtrade off each other on a minute-by-minute basis. Financial futures contracts nowexist all over the globe, and their price action is reported instantaneously on quotemachines and video screens to every other part of the globe. To put it mildly, muchhas changed in the financial markets in the past two decades and in the observer'sability to monitor them.
INTERMARKET ANALYSIS-A NEW DIRECTION
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There is probably a self-fulfilling prophecy at work in intermarket analysis. Yearsago, traders weren't as aware of the linkages between the various markets. Now, asthese markets are freely traded, with quotes and pictures so readily available onterminal screens all over the globe, traders react much more quickly to changingmarket events. A selloff in Tokyo can cause a selloff in London, which will influencethe opening on Wall Street. A sudden selloff in the German bond market can cause asimilar selloff in Chicago Treasury bond futures within seconds (which may impacton the stock market in New York a few seconds later). Trading activity in the UnitedStates sets the tone for overnight trading overseas. It seems incredible to think thatthe British stock market started dropping almost a year before the American stockmarket in 1929, and either no one in the States noticed, or hardly anyone seemed tocare. Today, such a selloff in London would have more immediate repercussions.There will be those who will want to go back further in time to study intermarketlinkages. My belief, however, is that the growing evidence of intermarket linkages parallels the evolution of the futures markets since the 1970s and our enhanced abilityto track them. It seems safe to say that with newer markets and instant communications, the world's markets have truly changed and so has our ability to react to thosechanges. For these reasons, comparisons before that time may not be very helpful.The more pertinent question isn't whether intermarket linkages were as obvious fortyyears ago, but whether they will still be obvious forty years from now. My guess isthat they will.INTERMARKET ANALYSIS-A NEW DIRECTIONTechnical analysis appears to be going through an evolutionary phase. As its popularity grows, so has the recognition that technical analysis has many applicationsbeyond the traditional study of isolated charts and internal technical indicators. Intermarket analysis represents another step in the evolution of technical theory. With thegrowing recognition that all markets are linked—financial and non-financial, domestic and international—traders will be taking these linkages into consideration moreand more in their analysis. Because of its flexibility and its universal application toall markets, technical analysis is uniquely suited to perform this type of analysis.Intermarket analysis simply adds another step to the process and provides a moreuseful framework for understanding analysis of the individual sectors. For the pastcentury, technical analysis has had an inward focus. My guess is the next centurywill witness a broader application of technical principles in the areas of financialand economic forecasting. Even the Federal Reserve Board has been known to peek atcharts of the financial markets on occasion. The principles presented in this text areadmittedly only the first- steps in a new direction for technical analysis. However, Ibelieve that as technical analysis continues to grow in popularity and respectability,intermarket analysis will play an increasingly important role in its future.
APPENDIX
As the reader has probably detected from the computer-generated charts in thepreceding chapters, this book was written over a span of several months. In eachchapter, the most recent market data was utilized. Naturally, each succeeding chapterincluded more recent price data. Instead of going back to update the earlier chartsand edit market observations with the benefit of hindsight, the decision was madeto leave the earlier chapters alone and to include the more recent data as the bookprogressed. As a result, the material has a dynamic quality to it as I assimilated newmarket data into the intermarket equation.The purpose of this Appendix is to update the most important intermarketrelationships through the third quarter of 1990 as we go to press. Some relationshipshave performed better than others in the past year, but, as I hope you'll agree, mosthave held up quite well. It's gratifying, for example, to see how well the marketsfollowed the intermarket script even during the hectic days of the Mideast crisisthat gripped the global financial markets during the summer of 1990. Chart examplesutilized in any book quickly become outdated. The important point to rememberis that even though the chart data is constantly changing, the basic principles ofintermarket technical analysis stay the same.
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APPENDIX
FIGURE A.1CHARTS OF THE FOUR SECTORS-THE DOLLAR, CRB INDEX, STOCKS, AND BONDSTHROUGH THE THIRD QUARTER OF 1990. A WEAK DOLLAR DURING MOST OF 1990 HELPEDSUPPORT COMMODITY PRICES AND PUT DOWNWARD PRESSURE ON BONDS AND STOCKS.
APPENDIX
261
FIGURE A.2A COMPARISON OF THE CRB INDEX AND TREASURY BONDS FROM LATE 1989 THROUGH THETHIRD QUARTER OF 1990. DURING THE FIRST HALF OF 1990, COMMODITIES RALLIED WHILEBONDS WEAKENED. THE BOND BOTTOMS IN EARLY MAY AND LATE AUGUST (SEE ARROWS)WERE ACCOMPANIED BY PEAKS IN COMMODITY PRICES.
Dollar Index-One Year
Dow Industrials-One YearCRB Index-One Year
CRB Index
Treasury Bonds
Treasury Bonds
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APPENDIX
FIGURE A.3STOCKS VERSUS BONDS FROM LATE 1989 THROUGH SEPTEMBER 1990. AFTER FALLINGTHROUGH THE EARLY PORTION OF 1990, THE BOND TROUGH IN EARLY MAY HELPEDSUPPORT THE STOCK RALLY. BONDS FAILED TO CONFIRM THE DOW'S MOVE TO NEW HIGHSDURING THE SUMMER. BOTH MARKETS THEN TUMBLED TOGETHER.
APPENDIX
263
FIGURE A.4A COMPARISON OF THE DOW INDUSTRIALS, DOW UTILITIES, AND TREASURY BONDSFROM AUTUMN OF 1989 THROUGH THE THIRD QUARTER OF 1990. RELATIVE WEAKNESSIN THE DOW UTILITIES FROM THE BEGINNING OF 1990 PROVIDED AN EARLY BEARISHWARNING FOR THE DOW INDUSTRIALS. NOTICE THE CLOSE CORRELATION BETWEEN THEDOW UTILITIES AND TREASURY BONDS.
Dow Industrials-One YearDow Industrials
Treasury Bonds
Dow Utilities
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APP