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Watching Strange Intermarket Action On December 4

 December 04, 2012 06:16 PM

Today's trading session began with some very interesting – and conflicting – information from the Intermarket perspective.

Let's take a look at today's closing data and put that in context of the shorter term trends in Stocks, Gold, Oil, and the US Dollar Index.

In general terms, we group each major market into "Risk-On" (offensive) or "Risk-Off" (defensive) and categorize movement from there.

Stocks and Commodities (and the Euro) are popular "Risk-On" markets where investors/traders put money to work into the markets (buying) while Treasuries and the US Dollar are popular markets to protect capital (sell or hedge open positions).

[Related -Buffett's Market Indicator Flashes Red, Prepare To Sell]

As today's session reminds us, there isn't a hard rule where risk-on assets must rise while risk-off assets must fall but it is unusual to see all main markets move together.

Today started with a sharp downside opening gap in Oil and Gold… but also the US Dollar index while stocks opened roughly unchanged.

Money seemed to flow slightly into the safety of Treasuries and out of commodities in today's session.

With this in mind, let's broaden the perspective beyond today to see the intraday trends in motion:

[Related -PBoC joins other major central banks with unconventional monetary policy action]

The Quad-Chart above shows the respective futures and their 15-min charts from November 20th to present.

I highlighted two days for comparison – the V-Spike "Risk-On" Reversal of November 28th and today's session.

Once again, we see very interesting short-term movement that draws our attention.

Stocks have steadily increased from November 20th to present while Oil sold-off sharply until the November 28th reversal and then recovered just as sharply to make new highs into $90.

Another interesting cross-market factor is the persistent weakness in the US Dollar Index which is expected given the strength in stocks and oil.

What is NOT expected is the weakness and reversal in Gold in the context of a short-term downtrend in the Dollar and a persistent uptrend in stocks.

In fact, Gold is in danger of a breakdown under $1,700 at the same time the stock market is struggling to hold a breakout above 1,400 and 1,410's resistance.

The Dollar is also in danger of falling lower toward Daily Chart support levels after the recent breakdown under 80.

As such, gold deserves additional attention and caution given the recent money flow out of gold which broke price support $1,700.

It's possible we could be seeing a temporary intermarket blip due to year-end portfolio rebalancing, hedging, and other adjustments.

Intermarket relationships can and do bend over time but they rarely break – at least not for long.

Continue to focus on these markets relative to each other to get a sense of the bigger picture of capital flows.

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