Intermarket Analysis for the CMT Exam: Cross-Asset Relationships

Intermarket Analysis on the CMT Exam

Intermarket analysis sits inside the official Advanced Techniques and application areas for CMT Level II. It extends Dow Theory's principle of confirmation across multiple asset classes.

For the complete Level 2 overview, see the CMT exam guide 2026.

The Four Asset Classes

John Murphy's intermarket framework examines relationships between:

1. Bonds (interest rates)
2. Stocks (equities)
3. Commodities (inflation hedge)
4. Currencies (USD and international)

Key Intermarket Relationships

Normal Environment (Inflationary)

• Bonds ↓ → Stocks ↓ (with lag) → Commodities ↑ → Dollar ↓

Deflationary Environment

• Bonds ↑ → Dollar ↑ → Commodities ↓ → Stocks uncertain

Interest Rate Impact

• Rising rates → Bonds fall, stocks eventually follow
• Falling rates → Bonds rally, stocks follow with lag

Relative Strength Analysis

Relative strength (RS) compares performance between two assets:

• RS Line = Asset A price / Asset B price
• Rising RS = A outperforming B
• Used for sector rotation and asset allocation in portfolio management

Practical Applications

1. Sector rotation: Use RS to identify leading sectors
2. Risk-on/Risk-off: Monitor bond-stock ratio for market regime
3. Currency impact: Dollar strength affects commodity prices inversely
4. Global markets: Compare domestic vs. international equity RS

Combine with breadth indicators and volatility analysis for comprehensive market assessment.

Continue studying with our practice tests and the full guide.