Intermarket Analysis & Economic Forecasting

By Ruggiero Jr., Murray A. | Futures (Cedar Falls, IA), March 2001 | Go to article overview

Intermarket Analysis & Economic Forecasting

Ruggiero Jr., Murray A., Futures (Cedar Falls, IA)

Using intermarket analysis and Elliott wave patterns, we can better forecast turns in the economy. This can lead to better predictions of major shifts in tradable markets.

Markets do not exist in a vacuum and neither does the economy. The two are undeniably linked, and if we can discover better ways to forecast the latter, we can expect to improve trading strategies for the former.

In this first of two parts, we will discuss how we can use intermarket analysis and economic data to forecast interest rates and the possible direction of the economy. Not only is better economic forecasting valuable to the small business owner on Main St. but, more important to us, it can play an integral part in improving economic-based trading strategies.

At best, traditional economic forecasting has an unfavorable track record. However, there are economists who are almost never tight in their analysis, yet their time as consultants is paid for dearly by hedge funds managers. But the tide for economic forecasting is quietly changing. Many large corporations now use intermarket analysis in their forecasting models. With several simple tools, individual traders can employ these same new techniques and even generate better forecasts than the so-called gurus.

Developing economic forecasts might be unfamiliar to many traders, either because they focus on just the technicals or consider it ancillary to the markets. But it is important, and this article will show why. To that end, we need to discuss several core topics that are needed in our analysis. These areas include:

1. How the bond and equity markets interact with the business cycle;

2. Understanding how the yield curve affects the economy;

3. How Elliott wave analysis can be used to analyze the economy;

4. How forecasts and news items affect the markets and the economy.

The business cycle Throughout history, the economy of the United States has undergone repeated boom and bust cycles. Sometimes, these cycles have moved to extreme levels like the Great Depression of the 1930s, the hyperinflationary 1970s and the great economic expansion of the 1990s. Normally, the business cycle is about four years in length, but sometimes the cycle will expand during times where large structural advancement is made.

Examples of business cycle expansion would be the Industrial Revolution of the 1920s and the beginning of pouplarization of the Internet and productively age of the 1990s. Often, during these longer periods of rapid economic growth, economists will get excited and say something to the effect that this time things are different and that there will be no economic contraction. But nothing so fundamental ever really changes, only the timing of the business cycle. To understand how intermarket analysis can be used to forecast the economy, we need to have a basic understanding of how the business cycle works (see "Intermarket cycles," left).

During the acceleration phase of an economic expansion, bond prices begin to turn down because of the underlying fear of inflation. Lower bond prices represent higher interest rates and after a time, consumers feel the pressure of higher interest rates on their ability to spend money. This is bearish for stock investments, and a downturn in stock prices occurs. Higher interest rates and inflationary pricing cause people to buy fewer goods on time, and the resulting slowing of economic activity serves to hurt corporate profits.

The downturn in stock prices will start about six months before we begin to see a turn down in the general economy. After the economy has moved into recession, bond prices again will lead the way by beginning to rally six to eight months before the economy actually begins to turn back up. After bond prices begin to rally, stock prices will follow.

If we can understand the dynamics of how bond prices and stock prices are interrelated with the economy on a broad scale, we can use their general price activity to predict the direction of the economy. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Cite this article

Cited article

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)


1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

Cited article

Intermarket Analysis & Economic Forecasting


Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25,

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.