Intermarket Analysis

Thank you Mr. Ruggiero:

Thank you for replying. I am very interested in negatively correllated markets! I think it can be a great complement to technical analysis. I know others like Larry Williams are starting to favor them as an important tool. To what extent do you find the institutions favoring Intermarket Analysis in their trading? What timeframe do they use it for-- daily, weekly or monthly?

Your code can be helpful, but my problem is trying to convert it to my existing Tradestation. (Sorry, I'm finally getting used to Tradestation and am not ready to change. :( ) Any suggestions for conversion, or does TS recognize the coding more or less?

But it has helped to stimulate my thoughts on specific market relationships. From what I know, I take it the ratio of these markets are important. So, I wanted to get your thoughts on each and every one of these combinations:
1) Bonds/S&P or Dow;
2) Currencies/Bonds;
3) XAU or Gold /S&P;
4) XAU or Gold/ Bonds VERSUS Commodities/Bonds
5) Gold/ Swiss Dollar;
6) Philadelphia Utility Index (or Dow?)/ Bonds;
7) Oil (which index do you recommend?)/Dow or S&P; and lucky #
8) Oil Index/Gold VERSUS Oil Index/US Dollar

For example, which asset combinations have the strongest correllations (i.e., most effective for timing) and any numerical historical ratio analysis triggers you can point out? This will certainly help those of us struggling with time and coding get up to speed.

This MIGHT get this thread alive and kicking! PLEASE feel free to comment comprehensively with all your 25 years of erudition! You can be succinct but be your usual rigorous self with each one.

Thanks in advance for your kind analysis and suggestions.
 
About a year or so ago I came up with a system using relative strength between ES and Bonds. When the RS got extreme then I looked for a reveral in the ES.

I used TS and the system was easy to code but the trade time for the bonds and ES were different so after noon it was useless since the bonds quit trading.

Any suggestions on which symbol to use for bonds that would trade the same times as the ES??

John
 
Quote from agtrader777:

Murray, I have a question regarding your intermarket work when coded into TradeStation 4.0. I noticed when I wrote the intermarket divergence system using negatively correlated markets described in Cybernetic Trading, I got different results when I wrote

Average(Close,10) of data 2
versus
Average(Close of data2,10)

Can you give me an idea why there would be a difference?

Thanks
More...

Here is the code I used.
[LegacyColorValue = true];

inputs: Stock( Close of data1), Index( Close of data2),lengthstock(10), lengthindex(10), length(5) ;


value1= xaverage(index,lengthindex);
value2= xaverage(stock,lengthstock);

value3= value2/value1;

Plot1(value3,"D");
Plot2(average(plot1,length),"A");
 
Mr. Ruggiero,
Did you go on vacation?

I hope I didn't stump you with my precise questionning on the few intermarket relationships that I listed for your commentary. Afterwards, I found a few of your Futures articles from 1995-2000 on such relationships, but was still left with some of the questions I posed on 12-30-05 01:54 PM. SO, I would like your comments here just the same.

I think such a dialogue would not only be informative to me, but would also bring out the lurkers for a lively discussion.

I'm sure people out there have valuable interrelationships that they'd like contribute and bounce off of you for your blessings. And, you might get some new ideas yourself if that is your intention. So, let's rev-up this interesting thread and share ideas.
 
Quote from swingman:

Mr. Ruggiero,
Did you go on vacation?
More...

Not really , but Christmas and New Years are very busy in my family and I have not had as much time for posts. Thank you for reminding me. If I don't answer a question in a day or so, just remind me either by PM or with a quick post, sometimes I get busy and forget.

In addition we have been working on releasing my new trend following trading systems and bonus pack of systems. I was working on these manuals plus getting another beta of 2.0 out.

Your questions are very good and allow me to bring up an important point. Ratio are powerful but can only be used when analyzing cash markets or working with futures on a contract by contract basis. Taking a ratio of back adjusted data is not valid. I know that some vendors can produce ratio adjusted data but most people are not using it. It would be a interesting study of how different backtested results are for the same basket using backadjusted and ratio adjusted data.

This is one of the reasons I developed my Price-Average(Price,10) methodology. Even though the ratio concept creates some problems, the relationships you ask about are very powerful and I will discuss them in more detail later today.
 
{Classic intermarket divergence system
Can go long, short or both and handles both positive and negative intermarket relationships file intermarkettool.ts}
Inputs: MkLen(10),InterLen(10),Relate(0),LSB(0);
Vars: MarkInd(0),InterInd(0);
MarkInd=Close-Average(Close,MkLen);
InterInd=Close of data2-Average(Close,InterLen) of data2;
If Relate=0 then begin
If InterInd<0 and MarkInd<0 and LSB>=0 then buy at open;
If InterInd>0 and MarkInd>0 and LSB<=0 then sell at open;
If InterInd<0 and MarkInd<0 and LSB=-1 then exitshort at open;
If InterInd>0 and MarkInd>0 and LSB=1 then exitlong at open;
end;

If Relate<>0 then begin
If InterInd>0 and MarkInd<0 and LSB>=0 then buy at open;
If InterInd<0 and MarkInd>0 and LSB<=0 then sell at open;
If InterInd>0 and MarkInd<0 and LSB=-1 then exitshort at open;
If InterInd<0 and MarkInd>0 and LSB=1 then exitlong at open;
end;

This is one of my classic tool. This is a simple example we use in TradersStudio to show how you can translate TradeStation code in only a few mouse clicks. Relate=0 for negatively correlated markets, anything else tests positive relationships. It can also test long short or both. LSB= 0 both, 1=long only ,-1=short only
This is code for 2000i.
 
Gold is a really hot market now. Do you have any intermarket systems for gold or silver or any systems that work well to trade these markets?
 
Quote from swingman:

Thank you Mr. Ruggiero:

I wanted to get your thoughts on each and every one of these combinations:
1) Bonds/S&P or Dow;
2) Currencies/Bonds;
3) XAU or Gold /S&P;
4) XAU or Gold/ Bonds VERSUS Commodities/Bonds
5) Gold/ Swiss Dollar;
6) Philadelphia Utility Index (or Dow?)/ Bonds;
7) Oil (which index do you recommend?)/Dow or S&P; and lucky #
8) Oil Index/Gold VERSUS Oil Index/US Dollar

For example, which asset combinations have the strongest correlations (i.e., most effective for timing) and any numerical historical ratio analysis triggers you can point out? This will certainly help those of us struggling with time and coding get up to speed.
More...

This is a rich bed of research. Let me take these one at a time over the next few days. I will include system results for systems based on these intermarket relationship. That the best way to show how predictive these relationships are.

I will start with Thirty Year bond and Philadelphia Utility Index. First this is one of the most reliable intermarket relationships since I first started looking at it in 1996. I use a 8 period MA for the thirty year and a 18 day one for UTY. You can use the code I put up on the site earlier today to test it out. Here are my results using these markets generated with TradersStudio 2.0
 

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Quote from agtrader777:

Gold is a really hot market now. Do you have any intermarket systems for gold or silver or any systems that work well to trade these markets?
More...

First off, why assume watching another market would give you any kind of edge over just watching gold alone? If you were told that market X correlates closely to gold, or is inversely related, how does that help you pick turns in the gold market itself? If you place a bet based on some intermarket relationship, how do you know when to get out of a losing position if your intermarket indicator persists in telling you to stay?

I do not think there are any simple rules that work about buying x vs y because one is in uptrend and the other not, etc, and will cast my vote with gnome on this issue. The gist of the whole thing is that it works until it doesn't -- not unlike trendfollowing or other blanket methods. The concepts that do prove successful when trying to profit off intermarket correlations are exactly the same as trading off price alone: anticipation and timing. Figure out when things will change before everyone else, and the profits will come.

My advice would be not to zero in so closely between an apparent relationship between 2 specific markets, but rather maintain a larger perspective on a whole range of markets, just to get an idea about what the street is keying off of. This will probably only help you in gathering a sense of the "big picture", rather than actually providing entry signals, but I think it is the more honest expectation when it comes it intermaket analysis.
 
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