Understanding intermarket analysis is key to discover the most enticing investing opportunities.
Intermarket analysis is simply the study of how key assets behave against each other (stocks, commodities, bonds, gold, currencies). The analysis results in identifying primary and secondary trends. For instance, between the summer of 2014 and February of 2016 crude oil’s collapse was the primary trend / driver. It made stocks very shaky (secondary trend), and the U.S. dollar very strong (arguably a primary trend).
Right now, we see a new primary trend, which is the rise of yields. Obviously, rising yields imply that Treasury prices go down. But, more importantly, it will probably put pressure on gold prices. It remains to be seen how commodities will react on this (probably muted) and how stocks will digest this (likely investment risk appetite will rise leading to higher stock prices).
With that in mind, investors can already start forecasting scenarios. In doing so, it is key to wait for the market to give sufficient confirmation before taking positions, or, even better, take a first position early on and add a second position once the trend is confirmed.
Which sector(s) that are benefiting from the new primary trend? Life insurance companies are outperformers even if stocks are retracing, just like investment services. The first chart makes our point clear; it shows the life insurance sector represented by DJUSIL.
The second chart shows the invesment services sector, represented by DJUSSB, and the chart pattern is very similar to the one above, so we present it without additional comment.