Intermarket Analysis & Asset Allocation Flashcards
6 cards from real CTA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Intermarket Analysis & Asset Allocation flashcards as text
Which technical indicator is commonly used to compare the performance of two securities in relative strength analysis?
Answer: A ratio or relative strength line (Price A / Price B)
A relative strength ratio line is created by dividing the price of one security by another — when the line rises, the numerator security is outperforming the denominator.
In the context of the business cycle, which sectors are typically associated with the early expansion phase?
Answer: Consumer discretionary and financials
Early in an economic expansion, consumer spending and lending increase first, benefiting consumer discretionary and financial stocks before the cycle broadens to other sectors.
What does a 'yield curve' indicate, and why is it important in technical market analysis?
Answer: The relationship between interest rates and maturity dates for bonds; an inverted yield curve has historically preceded recessions
The yield curve plots interest rates across different bond maturities — inversion (short rates exceeding long rates) has been a reliable leading indicator of economic recession.
In intermarket analysis, gold is often viewed as a leading indicator for which asset class?
Answer: Other commodities and inflation expectations, and an inverse indicator for real interest rates
Gold often leads the broader commodity complex and reflects inflation expectations; it tends to rise when real interest rates (nominal rates minus inflation) are declining or negative.
The concept of 'intermarket divergence' signals a potential warning when:
Answer: Two correlated markets that normally move together begin to diverge in direction
When historically correlated markets (like the S&P 500 and copper prices) diverge, it raises a red flag — one market is potentially giving a misleading signal and a resolution is likely coming.
In John Murphy's intermarket model, the typical sequence of market leadership at a cyclical turn from recession to expansion is:
Answer: Bonds → Stocks → Commodities
Bonds typically turn first (falling rates stimulate the economy), stocks turn next (anticipating recovery), and commodities turn last (rising demand from actual economic activity increases commodity prices).