Intermarket Model Since 1900

In addition we have run three further studies after the original and we have taken into account different trigger signals, but buying the same assets as above (10-year T-Bond, S&P 500 Index, and CRB Index). The trigger signals came from:

  • T-Bonds, S&P Composite, and CRB Spot Raw Materials (which is slightly different from CRB Index);
  • Commercial Paper Yield (inverted), S&P Composite and CRB Index; and
  • T-Bonds Yield (inverted), S&P Composite and CRB Index.

Although we changed the timing signal component, the study highlighted no significant differences. On average all of them reached the same conclusion:

  • Stage 1 favourable for Bonds and Stocks (high risk for Stocks) – (deflationary)
  • Stage 2 favourable for Bonds and Stocks – (deflationary)
  • Stage 3 favourable for Stocks and Commodities – (inflationary)
  • Stage 4 favourable for Stocks and Commodities – (inflationary)
  • Stage 5 favourable only for Commodities – (inflationary)
  • Stage 6 favourable for cash – (deflationary)

Since 1900

However, it is worth noting that the research is an average over 117 years and that probably in the 80s we would not have the same result as in the 70s, or in the 50s or 40s. We highlight this because long-term cycles play a very important role in the Intermarket model.

We have also gone back 117 years (1900-2017) and we have calculated how long the markets have spent in each stage (figure 5.5). Figure 5.5 confirms our theoretical Intermarket approach where markets spend more time in stages 3 & 4 which represent the expansion of the economy, and less time is spent in stages 1 & 6, exactly the stages of the contraction (see Business Cycle section).

Figure 5.5: Percentage of time spent in each stage from 1900-2017

 

To verify the results, we decided to take into account also a longer and shorter period of time.

Comparing data from 1860, 1900 and 1950 (figure 5.6) gives a better picture of how the markets spent the same percentage of time as the model would suggest. Changing the period of time the music does not change, and the Intermarket principles still hold.

Figure 5.6: Stage comparison between 1860, 1900 and 1950 to date

First column of each stage from 1860, second column from 1900, third column from 1950.