Here’s a situation. It’s 10:15 AM, the market’s been open for 45 minutes, and the Nasdaq is starting to look heavy at a key level. But there’s no news. No obvious catalyst. You’re thinking about a short, but you’re hesitant. It feels like you’re missing a piece of the puzzle. We’ve all been there. The truth is, the stock market doesn’t operate in a vacuum. Understanding intermarket analysis—which is just a fancy way of saying you know how different markets whisper clues to each other—is often that missing piece.
It’s the closest thing we have to a “cheat sheet” for market sentiment.
Funny thing is, most traders either ignore it completely or get it wrong. They treat it like a magic 8-ball. It’s not.
What is Intermarket Analysis, Really? (The Way We See It)
Look, forget the textbook definitions for a second.
For our team, intermarket analysis is simply context. It’s like checking the weather forecast before you decide to wear shorts. If the chart of your stock is sunny but the bond market is forecasting a hurricane, you should probably rethink your plan.
It’s about understanding that big institutional money flows between different asset classes—stocks, bonds, currencies, and commodities. When money is flowing out of one, it has to flow into another. Watching those flows gives you a massive clue about the market’s real appetite for risk.
Is the market feeling brave (“risk-on”) or scared (“risk-off”)? Intermarket analysis answers that question.
Our #1 Rule: Use It for Confirmation, Not Initiation
This is the most important part. Seriously. If you get this wrong, you’ll get burned.
Our team NEVER takes a trade just because of a correlation. We use correlations to CONFIRM a trade setup we already like based on price action and technicals.
Let’s rephrase that. We find a stock we want to short based on a clear support and resistance level. The setup looks great on its own. THEN, we glance at the bond market. If we see bonds catching a strong bid (meaning money is flowing to safety), it adds a ton of conviction to our short thesis.
It’s the difference between saying “I think this stock will go down” and “I think this stock will go down, and the broader market is getting nervous, which supports my idea.” See the difference? One is a guess, the other is a calculated thesis.
The Four Horsemen: Key Market Relationships You MUST Watch
You don’t need to track a million different things. Honestly, if you just keep an eye on these few key relationships, you’ll be ahead of 90% of other retail traders.
The Classic Tug-of-War: Gold (GLD) vs. The US Dollar (DXY)
This is the oldest one in the book. Generally, when the US Dollar gets stronger, gold gets weaker, and vice versa. They have an inverse correlation.
- Why? Gold is priced in US dollars globally. When the dollar strengthens, it takes fewer dollars to buy an ounce of gold, so its price tends to fall. Also, during times of fear, both can act as “safe havens,” which can complicate things… but the inverse relationship is the dominant one.
- How We Use It: If we’re looking at a breakout setup in gold miners (which follow the price of gold), we’ll glance at the Dollar Index (DXY). If the DXY is rolling over and breaking down, it’s a green light. If the DXY is ripping higher, we’re probably going to pass on that long trade. It’s that simple. We wrote a whole guide on trading Gold Futures that dives deeper on this.
The Growth vs. Safety Meter: Stocks (SPY) vs. Bonds (TLT)
This is our team’s favorite. It’s the clearest “risk-on” vs. “risk-off” signal there is.
- Why? When investors are confident and want growth, they buy stocks (like the SPY). When they’re scared and want safety, they sell stocks and buy government bonds (like the 20+ Year Treasury Bond ETF, TLT). So, they usually move in opposite directions.
- How We Use It: This is huge for trading tech stocks. The Nasdaq (QQQ) is super sensitive to interest rates, and the bond market is what drives rates. If we see TLT starting to fall hard (meaning bond prices are dropping and yields are rising), it’s a major headwind for tech. We might avoid new long positions in QQQ or even look for shorts, even if the chart looks okay.
The Wildcard: Crude Oil (USO) and Its Ripple Effect
Oil is a weird one because it affects everything. It’s not as clean as the other relationships, but you have to be aware of it.
- Why? Higher oil prices act like a tax on the economy. It means higher costs for transportation, manufacturing, and for consumers at the pump. This can lead to inflation and slow down economic growth, which is generally bad for stocks.
- How We Use It: We watch oil mostly for its impact on inflation expectations. If oil is ripping higher for weeks on end, we know the Fed is watching, and the risk of them keeping interest rates high goes up. That puts pressure on the whole market. It’s more of a background factor, but a crucial one.
A Real Trade Simulation: The Day Bonds Warned Us About Tech
Let’s make this real. A few months back, I think it was around a CPI report in mid-2024, the market was choppy.
The Nasdaq (QQQ) had rallied up to a significant resistance level from the prior day. We were looking for a potential failure, a short setup. The price action was starting to stall, volume was looking a bit weak… the setup was a solid B+.
But we were hesitant. The market could easily push higher.
So, what did we do? We pulled up a chart of the 20+ Year Treasury Bonds (TLT).
And what we saw gave us the conviction we needed. While QQQ was hesitating at resistance, TLT was catching a strong bid. It had broken a key intraday level to the upside.
That was our signal. Big money was moving into the safety of bonds at the same time the Nasdaq was hitting a known resistance level. That was the “risk-off” confirmation we were looking for. We took the short on QQQ with a defined stop above the high. The trade worked almost immediately. Without the signal from the bond market, we might have missed it or taken it with much smaller size.
That’s the power of intermarket analysis. It’s about connecting the dots.
Tools You’ll Need
You don’t need anything too fancy to get started.
- A Great Charting Platform: You need software that allows you to easily overlay one asset on top of another. Our whole team uses TradingView for this. You can literally type “TLT” into a SPY chart and it will plot them together. It’s indispensable for seeing these relationships in real-time.
- A Real-Time Scanner: Correlations help you confirm ideas, but you need to find the ideas first. For that, you need a scanner that can find stocks with unusual liquidity and volume. Our entire operation is built around Trade-Ideas. Its AI helps us find the best setups long before they hit the mainstream.
Common Mistakes to Avoid (How Correlations Can Lie)
Now, the reality check. These relationships are not perfect, and relying on them blindly will get you killed.
- Correlations are Not Static: The classic “stocks vs bonds” relationship can completely break down. During some crises, like back in 2022, both stocks AND bonds went down together because inflation was the bigger fear. You have to adapt. Don’t assume a relationship will hold forever.
- Beware of Lag: Sometimes, one market will lag another. You might see the dollar drop, but gold doesn’t react for an hour. If you jump the gun, you’ll get stopped out before the move happens. Patience is key.
- Don’t Force It: If you have to squint and stare at a chart for five minutes to see the correlation… it’s not there. The most powerful signals are the obvious ones. When TLT is screaming higher and QQQ is dumping, you can’t miss it. Don’t try to find relationships that don’t exist.
Frequently Asked Questions
What is the best example of intermarket analysis?
The inverse relationship between the US Dollar (DXY) and Gold (GLD).
The most classic and reliable example is the tug-of-war between the US Dollar and Gold. When the dollar gets stronger, gold tends to get weaker, and vice versa. It’s a foundational concept that helps traders gauge global risk sentiment.
Key Takeaway: If you’re trading gold or gold miners, you must have a chart of the DXY open.
How do you trade using correlation?
Use correlation as a confirmation tool, not as an entry signal.
Find a trade setup based on your primary strategy (e.g., price action, a chart pattern). Then, look at a correlated asset to see if it confirms your thesis. For instance, if you want to short stocks, check if the bond market (a safe-haven asset) is catching a bid.
Key Takeaway: Your trade must stand on its own merits first; the correlation is just extra evidence.
What assets are correlated with the S&P 500?
The S&P 500 is typically negatively correlated with Treasury Bonds (TLT) and the VIX, and positively correlated with high-yield bonds (JNK).
In a “risk-on” environment, the S&P 500 (SPY) rallies alongside riskier assets. It generally moves opposite to “risk-off” assets like long-term bonds (TLT) and the Volatility Index (VIX). Understanding this helps you see if the broad market supports your individual stock trade.
Key Takeaway: Watching bonds can give you a major clue about the next move in the stock market.
What is the relationship between the dollar and gold?
They generally have an inverse or negative correlation.
When the US Dollar strengthens, the price of gold (which is priced in dollars) tends to fall. When the dollar weakens, gold tends to rise. While they can sometimes move together during major crises, their primary relationship is inverse.
Key Takeaway: A falling dollar is a tailwind for gold prices.
What is the relationship between bonds and stocks?
They are typically negatively correlated, representing the “risk-on” vs. “risk-off” dynamic.
When investors are optimistic, they sell safe bonds to buy stocks, causing stocks to rise and bonds to fall. When they are fearful, they sell stocks and buy bonds for safety, causing stocks to fall and bonds to rise.
Key Takeaway: The bond market (TLT) is often a leading indicator for the stock market (SPY/QQQ).
What is a risk on risk off asset?
“Risk-on” assets are high-growth potential investments like stocks and high-yield bonds, while “risk-off” assets are safe havens like government bonds and gold.
“Risk-on” means investors are confident and buying assets that do well in a growing economy. “Risk-off” means they are scared and moving money to assets that preserve capital during a downturn.
Key Takeaway: The flow of money between these two categories is a powerful gauge of market sentiment.
Can you use intermarket analysis for day trading?
Absolutely. It is an extremely valuable tool for day traders.
Intermarket analysis provides real-time context about market-wide sentiment. Watching if bonds are being bought or sold can give you critical information about whether there is institutional conviction behind an intraday move in the stock market.
Key Takeaway: Use intermarket analysis on shorter timeframes to confirm your intraday setups.
What tools are needed for correlation trading?
A good charting platform with an “overlay” feature is the most essential tool.
You need to be able to plot one asset (like TLT) directly on top of another asset’s chart (like QQQ) to visualize the correlation or divergence in real-time. Platforms like TradingView are excellent for this.
Key Takeaway: Visualizing the relationship is key, so your charting software must support overlays.
Is intermarket analysis a leading or lagging indicator?
It’s best viewed as a coincident or short-term leading indicator.
Sometimes, a move in the bond market can precede a move in the stock market by a few minutes or hours, acting as a leading indicator. Other times, they move simultaneously. It is rarely a lagging indicator.
Key Takeaway: Pay close attention when a normally correlated market starts to diverge—it’s often a warning sign.
What is an example of a non-correlated asset?
Historically, certain alternative investments and market-neutral strategies are designed to be non-correlated, but it’s very rare.
In today’s global market, almost all assets have some degree of correlation, especially during a crisis when everything tends to move together (“correlation one”). True non-correlation is the holy grail for large funds but difficult for retail traders to find and utilize.
Key Takeaway: Assume everything is correlated to some degree and focus on the most reliable relationships.
Your Next Steps
Stop looking at the market through a keyhole.
Intermarket analysis gives you a panoramic view. It’s not a magic bullet, and it’s not a standalone strategy. But it is a powerful layer of context that can dramatically improve your timing and conviction.
Here’s a simple homework assignment: The next time you’re trading, pull up a chart of the S&P 500 (SPY). Now, use your charting software to overlay the 20+ Year Treasury Bond ETF (TLT) on the same chart. Just watch them. Watch how they interact at key levels.
It’ll feel like you just put on a new pair of glasses.
