What is intermarket analysis? John Murphy’s framework

Technical analysis usually looks at one chart at a time. Intermarket analysis widens the lens: it asks what bonds, the dollar and commodities are doing before drawing conclusions about stocks. The approach was popularized by John J. Murphy, a longtime market technician, in his 1991 book Intermarket Technical Analysis, and expanded in a follow-up book, Intermarket Analysis, in 2004. His core idea is that all markets are linked, and that watching only one of them means missing part of the picture.

Murphy described a chain that runs through inflation: the dollar affects commodity prices, commodity prices affect inflation expectations and therefore bond yields, and bond yields affect stocks. The drawing at the top of the page sums it up. Each link is a tendency with plenty of exceptions, and the links can change with the inflation backdrop, as a later section shows.

Intermarket analysis is a backdrop tool, not a timing tool. It helps you decide which sectors and asset classes have the wind behind them; entries, stops and position size still come from the chart and your risk management rules.

Bond yields and stocks: why growth stocks feel rising yields most

Bond prices and yields move in opposite directions: when the 10-year Treasury yield rises, existing bonds lose value. Rising yields matter for stocks in two ways. They raise borrowing costs for companies and households, and they raise the rate used to discount future profits, so a dollar of profit far in the future is worth less today. The Federal Reserve guide explains how rate decisions spread into yields.

Growth stocks are hit hardest because more of their value sits in profits expected years from now. Hypothetical: $10 of profit expected in 10 years is worth $8.20 today at a 2% discount rate, but $6.14 at 5%, about 25% less. $10 expected next year drops only from $9.80 to $9.52, about 3% less. That is why long-duration growth stocks tend to suffer more than value stocks when yields jump. In 2022, as yields rose sharply, the Nasdaq Composite fell about 33% against about 19% for the S&P 500.

The reverse is not automatic. Yields that fall because investors fear a recession often come with falling stocks, because the earnings outlook is getting worse. Ask why yields are moving, not just which way.

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Two panels over twelve hypothetical months. Top: the US 10-year yield rising from 2.0% to 4.0%. Bottom: a growth-stock index falling from 100 to 72 while a value-stock index slips from 100 to 94, with the note long-duration stocks feel rising yields most.

The dollar, gold, oil and emerging markets

Most commodities are priced in US dollars, so a stronger dollar makes them more expensive for buyers paying in other currencies, and a weaker dollar makes them cheaper. That is why the dollar and gold often move in opposite directions, and why a falling dollar has tended to coincide with rising commodity prices. The gold trading guide covers gold’s other drivers, especially real yields. The dollar is usually tracked with the US Dollar Index (DXY), which measures it against six major currencies, with the euro by far the largest weight.

Oil links to inflation and to emerging markets. Energy is part of consumer prices, so a sustained rise in crude tends to lift headline inflation and inflation expectations, which can push yields up and complicate the central bank’s job. For emerging markets the effect depends on the country: oil exporters tend to benefit from higher prices, while importers pay more. A strong dollar is often a headwind for emerging markets in general, because many governments and companies there borrow in dollars, and repaying gets more expensive when their own currency weakens.

The classic relationships at a glance, each a tendency rather than a rule:

  • Dollar up: gold and other commodities tend to fall.
  • Commodities and oil up: inflation expectations and bond yields tend to rise.
  • Yields up sharply: stocks come under pressure, long-duration growth stocks most.
  • Dollar up: a headwind for emerging markets and for the overseas earnings of US multinationals.
  • Copper up relative to gold: the market is pricing stronger growth (next section).

The copper/gold ratio: a market gauge of growth

Copper is used in construction, power grids, cars and electronics, so demand rises with industrial activity; gold is a store of value that tends to attract buyers when growth or confidence fades. Dividing the copper price by the gold price gives a rough gauge of how the market feels about growth: a rising ratio means copper is outperforming gold, a sign of growth optimism, while a falling ratio points to caution.

Over many years the ratio has tended to move in the same direction as the 10-year Treasury yield, which also rises with growth and inflation expectations. Some traders watch for gaps between the two, as in the drawing below: if the ratio rolls over while yields keep climbing, one of them may be sending the wrong message. A gap is a question to investigate, not a signal to trade.

On TradingView, type COMEX:HG1!/COMEX:GC1! into the symbol search. The value looks tiny because copper is quoted in dollars per pound and gold in dollars per ounce: a hypothetical copper price of $4.50 and gold price of $3,000 give 4.50 ÷ 3,000 = 0.0015. Only the direction matters.

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A hypothetical copper ÷ gold line and the 10-year yield (dashed green) rising together for most of the chart, with the note both tend to rise with growth expectations; at the right edge the ratio turns down while the yield keeps rising, and the gap is circled in red with the note a gap: a question, not a signal.

Why correlations change: when stocks and bonds fell together in 2022

The relationship between stocks and bonds is not fixed. In the inflationary decades of the 1970s and 1980s they often moved together. From around 2000 until 2021, with inflation low and stable, high-quality bonds more often rose when stocks fell, because investors bought them for safety and expected rate cuts. That negative correlation made bonds a cushion in a diversified portfolio.

In 2022 the cushion failed. Inflation reached its highest level in about 40 years and the Federal Reserve raised rates at the fastest pace since the early 1980s, so bond prices fell at the same time as stocks: the S&P 500 lost about 19% for the year and the broad US investment-grade bond market about 13%, its worst year on record. When inflation is the main worry, rising yields hurt both, and stocks and bonds tend to move together.

The practical lesson: work out which regime you are in before relying on any relationship, inflation-driven or growth-driven, and check it again regularly, because the correlation that held last year may not hold this year. The same goes for the dollar and gold: heavy central-bank buying of gold has at times weakened their usual inverse link.

How to build an intermarket dashboard on TradingView

You do not need special software. A watchlist and a few charts are enough:

  1. Create a watchlist with the core symbols: TVC:DXY (US Dollar Index), TVC:US10Y (10-year Treasury yield), COMEX:GC1! (gold futures, continuous contract), NYMEX:CL1! (WTI crude oil futures), COMEX:HG1! (copper futures) and SPY for the S&P 500.
  2. Add ratios by typing them into the symbol search: COMEX:HG1!/COMEX:GC1! for copper/gold, and a sector against the market such as XLE/SPY or XLK/SPY. TradingView builds a spread chart from a formula using addition, subtraction, multiplication or division.
  3. Use the weekly chart for the backdrop and add a simple moving average, for example 40 weeks, to see at a glance whether each market is above or below a rising or falling average.
  4. Compare on one chart: open SPY and use the Compare or Add symbol button to overlay TVC:US10Y or TVC:DXY as a percentage line, so turning points sit side by side.
  5. If your plan allows several charts per layout (the free plan shows one), arrange four or six panels and sync them to the same timeframe.
  6. Write a one-line reading each week: dollar, yields, oil, copper/gold and which sectors lead. Over time the log shows which relationships held and which broke, much like a trading journal.

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Six small chart panels in a grid under the title one weekly look at the backdrop (illustration): TVC:DXY, the dollar, +5%; TVC:US10Y, the 10-year yield, 4.0 to 4.6%; COMEX:GC1!, gold, −3%; NYMEX:CL1!, crude oil, +15%; HG1!/GC1!, copper/gold, +8%; and SPY, the S&P 500 ETF, 0%, each with a hypothetical weekly line.

What intermarket moves mean for sectors

Intermarket signals become useful when they point to sectors. Common tendencies, each with exceptions (see stock market sectors):

  • Rising yields: banks and insurers may benefit from wider lending margins, while utilities, real estate and other high-dividend “bond proxies” tend to lag, as do long-duration growth stocks.
  • Rising oil: energy producers tend to outperform, while airlines, transport and consumer companies face higher costs.
  • Strong dollar: large US multinationals earn less when overseas sales are converted back into dollars, while domestically focused small caps are less exposed; materials and emerging markets often lag.
  • Rising copper/gold ratio: cyclical sectors such as industrials and materials tend to lead defensive ones such as consumer staples and utilities.
  • Falling yields with a falling copper/gold ratio: growth worries; defensive sectors and long-term bonds tend to hold up better.

A worked example: reading the dashboard (hypothetical)

Suppose that over the past three months your weekly dashboard shows the dollar index up 5%, the 10-year yield up from 4.0% to 4.6%, crude oil up 15%, gold down 3% and the copper/gold ratio up 8%, as in the dashboard drawing above. The S&P 500 is flat, but under the surface XLE/SPY is rising and XLK/SPY is falling.

One reasonable reading: rising oil and yields say inflation pressure is building, the strong dollar helps explain the soft gold price, and the rising copper/gold ratio says the market still expects growth. That backdrop has tended to favor energy and other cyclicals over long-duration growth stocks and rate-sensitive sectors, which matches the two ratio lines. It also raises a risk flag: if yields keep rising, the pressure on high-valuation stocks could spread.

What it does not tell you: when to buy, or that the trend will continue. You would still look for a setup on the chart of a leading energy stock, size it from the stop, and watch for the backdrop to change, for example yields reversing lower while the copper/gold ratio falls, which would point to growth worries instead. The economic calendar shows when inflation and jobs data could shift the picture, and the relative strength analysis guide shows how to rank the leaders. If you trade daily and weekly charts, the UpTickFlow Strategy applies three gates on those timeframes; a backdrop like this one is context around such signals, not a replacement for your own risk rules.

Common mistakes and limits of intermarket analysis

Intermarket analysis is easy to overdo. The usual traps:

  • Treating correlation as causation: two lines moving together do not prove that one drives the other; both may respond to a third factor such as inflation or the Fed.
  • Ignoring lags: one market can lead another by weeks or months, and the lag changes over time. A relationship that looks broken may simply be late, and one that looks perfect on a past chart may not repeat.
  • Assuming fixed relationships: the stock-bond link flipped in 2022, and the dollar-gold link can weaken for long stretches.
  • Trading the backdrop directly: a favorable backdrop for a sector is not an entry signal; you still need a setup, a stop and a position size.
  • Too many inputs: a dashboard with twenty symbols produces a story for every outcome. Five or six markets read consistently beat many read occasionally.