How to Trade – Book Review – John Murphy, Intermarket Analysis

The majority of literature that discusses asset allocation linking multiple markets has a heavy dose of macro and microeconomics. Typically, macro-micro relationships require applying econometric models to comprehend the structural linkages between the two intertwined fields of economics.  John Murphy removes the hard statistical methods while retaining the economic logic with chart-based reasoning.

John Murphy was the technical analyst for CNBC-TV for seven years and a professional analyst for over 25 years. His career includes time at Merrill Lynch as a Director of Commodity Technical Analysis.  John has his own consulting firm, JJM Technical Advisors.  He is also president of MurphyMorris, Inc., which was created to produce educational software products and online services for investors.

There are adequate reader reviews on Amazon and Google Book Search, to help you decide if you will get the book. For those who have just started or are about to read the book, I’ve summarized the core concepts in the larger and essential chapters to help you get through them quicker.

The number on the right of the title of the chapter is the number of pages contained within that chapter. It is not the page number.  The percentages represent how much each chapter makes up of the 246 pages in total, excluding appendices.

1.  A Review of the 1980s.  16, 6.50%.

2.  1990 and the First Persian Gulf War.  16, 6.50%.

3.  The Stealth Bear Market of 1994.  18, 7.32%.

4.  The 1997 Asian Currency Crisis and Deflation.  14, 5.69%.

5.  1999 Intermarket Trends Leading to Market Top.  16, 6.50%.

6.  Review of Intermarket Principles.  16, 6.50%.

7.  The NASDAQ Bubble Bursts in 2000.  18, 7.32%.

8.  Intermarket Picture in Spring 2003.  16, 6.50%.

9.  Falling Dollar During 2002 Boosts Commodities.  14, 5.69%.

10.  Shifting from Paper to Hard Assets.  14, 5.69%.

11.  Futures Markets and Asset Allocation.  20, 8.13%.

12.  Intermarket Analysis and the Business Cycle.  20, 8.13%.

13.  The Impact of the Business Cycle on Market Sectors.  18, 7.32%.

14.  Diversifying with Real Estate.  18, 7.32%.

15.  Thinking Globally.  12, 4.88%.

Focus on chapters 3, 7 and 11-14, which makes up about 46% of the book. Especially chapters 11-14 are relevant for practical trading purposes.  Unlike my prior book reviews, where I’ve summarized the key points for each focus chapter, I will summarize the key points across chapters 3, 7 and 11-14. This is to recognize the connectivity of intermarket relationships across the 4 main asset classes of Stocks (Equities), Bonds, Currencies and Commodities.  The context of the summary is to be viewed from a retail option trader’s perspective.

Here are the Key Directional Intermarket Relationships in brief.

The U.S. Dollar (USD)

  • USD turns up as Bonds rise under normal conditions but Bonds fall during deflationary periods. USD turns down as Bonds fall but Bonds rise during deflationary periods.
  • USD turns up as Commodities fall.  USD turns down as Commodities rise.
  • USD turns up as Stocks rise but Stocks fall during deflationary periods. USD turns down as Stocks fall but Stocks rise during deflationary periods.

The USD remains the most liquid of all major traded currencies and maintains its position as the primary global reserve currency, despite growing sentiment for an alternative basket of currencies to replace it.

Bonds

  • Bonds turn up as the USD falls but the USD rises during deflationary periods. Bonds turn down as the USD rises but the USD falls during deflationary periods.
  • Bonds turn up as Commodities fall.  Bonds turn down as Commodities rise.
  • Bonds turn up as Stocks rise. Bonds lead Stocks and Stocks lag behind Bonds. Bonds turn down as Stocks fall. Again, Bonds lead Stocks and Stocks lag behind Bonds.

Commodities

  • Commodities turn up as the USD falls.  Commodities turn down as the USD rises.
  • Commodities turn up as Bonds fall. Commodities turn down as Bonds rise.
  • Commodities turn up as Stocks fall. Commodities turn down as Stocks rise.

Stocks

  • Stocks turn up as the USD rises.  Stocks turn down as the USD falls.
  • Stocks turn up as Bonds rise.  Stocks turn down as Bonds fall. Again, Bonds lead Stocks and Stocks lag behind Bonds.
  • Stocks turn up as Commodities fall.  Stocks turn down as Commodities rise.

Specific to Equities, as you trade the options on Sector Indexes of the S&P 500, please be aware of the correlation versus non-correlation with other equity and non-equity traded products. I am stating in brief, the more commonly known relationships that are repeatedly elaborated on in the book:

  • Changes in Energy (XLE) especially Oil (OIH, OSX) impacts Semiconductors (SMH, SOX).
  • Utilities (XLU, UTH, UTY) are negatively correlated with Semiconductors (SMH, SOX).
  • With broad-based Equity Indexes, the highest correlation is between Dow Jones and S&P 500.
  • Canada benefits from rallies in oil being the ninth largest producer of crude oil globally.  While Japan, a major net oil importer suffers. The tickers for this inter-play would be FXC/XDC (Canadian Dollar), FXY/XDN (Japanese Yen) and OIH/OSX (Oil).
  • Gold (XAU, GLD) behaves like the Australian Dollar (FXA, XDA). Australia is the third largest producer of gold globally.
  • Top three currencies that have the tightest correlations with commodities are the Australian Dollar, the Canadian Dollar and the New Zealand Dollar.
  • Gold/Silver (XAU, GLD) has very little correlation with other Indices.
  • A deeper understanding of these inter-plays can help you construct effective pairs trading methods.

In conclusion, from a retail option trader’s viewpoint, always remember that it is volatility that you are trading.  To trade the volatilities across multiple asset classes, use an optionable Index representing that particular asset class.  Remember, Implied Volatility can be added to or reduced from your portfolio, as not all Asset Classes or Sectors or Individual Companies or Countries move up/down in value ALL at the same time; and/or, ALL at the same rate.

 

This is not a criticism of the book but a personal observation.  It does not address the use of Relative Strength as a mechanism to cycle in or cycle out of an asset class, as one asset class weakens or strengthens against another asset class.  I have written about Relative Strength in another article, entitled “Stock Option Trading – Fundamental Flaw in Fundamental Analysis and Stock Picking”. Please read it as a supplement to this article.

The Stars Shine Down by Sidney Sheldon: A Book Review

I got tired of mouse clicks and clicking pages on my laptop. Instead, I badly wanted a feel for solid pages in my hands. That’s when I thought I would take a break and enjoy reading a novel, flipping through its pages for real by my favorite author, Sidney Sheldon.

I went to the nearest bookstore and felt compelled to buy three novels by him and hoped to enjoy weeks reading them which is exactly what I did. One of these books was, “The Stars Shine Down”. I do want to provide a review of this well-structured, well-plotted and well-crafted novel. Read on for the review.

The novel describes a 17-year old girl, Lara who has a hate relationship with her Dad because no matter how much she wants to impress and love him, he always passes on stinging remarks about her. After her Dad passes away, she dreams of erecting a building in a nearby spot from where she currently lived in a boarding house. Eventually she materialized her dream and that was how she got into real estate business.

She also aged and became a beautiful lady and everyone was mesmerized at the first glance. Yet she was America’s princess travelling London to New York, from Rino to Rome constructing buildings, hotels and shopping centers. She was successful and became a self-made billionaire. Of course, she had help all along. She also came across her soul mate while travelling, who happened to be a pianist. They fell in love and married each other. Yet they were from different backgrounds, one erecting high rise and the other engrossed in music.

When all her valuable assets seemed to be crashing down and she almost broke off with her husband, a surprise birthday party from her husband, friends and colleagues made it all a happy ending for her.

This is a fabulous book to encounter. I would recommend it to anybody who is interested in reading novels.

Some of Sidney Sheldon’s blockbuster novels are “The Sky is Falling, “Tell me Your Dreams”, “The Best Laid Plans”, “Morning, Noon & Night”, “Nothing Lasts Forever” and a countless other ones. Almost all have been number-one international bestsellers. His first book, “The Naked Face” was acclaimed by the New York Times as, “the best first mystery of the year” and received an Edgar Award. Most of his novels have become major feature films or TV miniseries and there are more than 300 million copies of his books in print throughout the world. Undoubtedly, Sidney Sheldon reigns as one of the most popular storytellers of all time.

The Girl From the Sea by Shalini Bolland: A Review

In her amnesiac thriller, Shalini Bolland introduces us to the confusion of a solitary woman washed up the shore. Percussive short sentences indicate the woman’s state of mind. The author segues into the sights, sounds, and smells of the hospital as our heroine is brought into the Emergency Department.

Reassured by Dr. Lazowski that her amnesia is temporary, our victim obsesses because she can’t even remember her name, much less how she came to be lying on the beach, water washing over her. Well-intentioned doctors, nurses and detectives press her for any memory that might surface. “Retrograde amnesia”. The use of the term strikes her panic button.

  • Where are you from?
  • Were you out running?
  • Do you have any identifying marks on your body?
  • Can you remember names of people you may know?

“I don’t know” is her resounding response. A look in the mirror confirms her fears. She has no idea who she is.

Someone has reported that “Mia James” is missing. Could that be her name? We immediately mistrust Mia’s boyfriend and family. Upon meeting her mother, she discovers that old photos of her are “in storage.” Piers, her boyfriend, whom she does not remember, fills her in on a huge inheritance she received from her father, and a real estate business that she and Piers own together. Mia meets all new information with mixed emotions. Who can she trust?

This contemporary mystery proceeds at a fast clip, fueling my inability to put the book down. The first person narrative is peppered with short paragraphs we assume to be memories, but even these are hazy. The emotional acceleration is propulsive until the middle of the book. Lies, blackmail, secrets, accusations, mistrust weave through The Girl from the Sea, but the book’s momentum slows to the point where the thrill of the thriller is stalled. A good read for those not needing consistently compelling reading.

I thank NetGalley and Adrenalin Books for supplying an ARC for my unbiased review.

What To Seek From Your Real Estate Agent?

Since, for most of us, our house represents the single – biggest, financial asset, doesn’t it make sense, when you decide, to sell your home, to get the best results, and when you purchase, you get the quality house, you seek and deserve? In most parts of the country, there are many options, in terms of hiring a real estate agent, to best represent you, and your needs, in the best possible way, so, it is wise, to choose smartly, and hire the best individual, for your specific needs, personality, situation, etc. Let’s review a few of the qualities to focus on.

1. Empathy: When you interview potential agents, observe closely, and see, if their presentation, is focused, clearly on you, or more general? Does the individual ask probing, insightful questions, and, then effectively listens, and learns, what you seek, and your goals, priorities, and needs? You might wonder why I list empathy before certain skills, but, it’s because, many have the skills, but fewer possess genuine empathy!

2. Marketing/ action plan: How will your house be marketed, and why? What media, vehicles, etc, might make the best differences, for the better? How will you, and the agent, work, as a team? How often will you share ideas, and how will the process go? How will potential price adjustments be determined and considered? What factors does the agent anticipate, and how will he position, you? Are you a candidate, for a house – stager, how expensive is it, and what are the benefits, etc?

3. Niche: Is this house a candidate for niche – marketing, and why? If so, what is that niche? How will the house be marketed and promoted, to best take advantage of that?

4. Strengths/ weaknesses: Avoid being overly emotional, and review, both, the strengths and weaknesses of the home and property, etc, especially compared to the competition. Emphasize the strengths, and minimize weaknesses!

5. Competitive Market Analysis: Pricing the house, right, from the start, is often the difference, between the finest, and lesser results! Many people falsely, equate, listing price, with selling price, and list the house, at too high a price! Doing so, often, hurts the final number, because, in most cases, the best results come in the first few weeks, and only intelligent pricing, does so! There are often times, when pricing lower, creates a competitive situation, and I have often, had clients, get better results, from starting lower, and attracting more buyers.

6. Integrity: It’s difficult to evaluate, but demand, an agent, with the utmost degree of genuine integrity!

Carefully examine and consider, who you choose, to hire, as your real estate agent. The better you choose, the easier the period.

Multiple Streams of Internet Income by Robert G Allen – Book Review

Title and Author: Multiple Streams of Internet Income by Robert G. Allen

Synopsis of Content:

Allen’s thesis here is threefold: first, that you can make serious money on the internet, that it is the gold mine of the future; second, that in order to maximize internet opportunities you must exploit several of them, or what he calls multiple streams, and third, done right this is a fast way to make profits.

The strength in this book is the innumerable tips and tricks that a person new to internet commerce would not know but a veteran likely would. The important websites and internet resources alone are probably worth the price of the book if you are starting out on the web or even are fairly new to this. Another strength of the book is the myriad of ideas it suggests for you. You can and should return to this book time and again to mine from it the gems of information that can lead you to opportunities. This is not a detailed how-to manual. It is a great survey of the basic ways that people are making money on the internet.

The chief weaknesses of the book are that it makes assumptions that may not be valid for the inexperienced reader and it promises too much too easily. Typical of the Allen approach, he is short on the obstacles and limitations and long on the promise for wealth and ease of effort. For example he discusses how quickly you can generate rapid sales from a well written sales letter by email but fails to tell the reader that this only works when you have built up a very impressive email opt in list and that they take either a lot of money or a lot of time and effort to create.

If you can bear that caveat in mind and remind yourself that there are no get rich quick schemes (at least none that are legal) you can still benefit significantly from this book.

I have not seen an all around basic introduction into the many opportunities to make money on the internet that is better than this one or more comprehensive. If you want to see the opportunities out there and get excited about following one or more such “streams” this book is a great introduction and a good motivator. Just remember there is a whole lot of work and a lot more education needed to accomplish the kinds of income flows that Allen suggests are easy to do. This book may well be the start of your internet wealth library but only the start – it will take a lot more to get you there.

One principle that Allen teaches here however is worth a comment as it is very true and very important: it is critical to set up multiple sources or “streams” of income on the internet because you are not like to find any one source that is perfect or last forever. Many internet sales systems burn out over time and new “campaigns” need to be launched to capture more sales.

This book was written in 2001 and is therefore very dated. The internet and internet commerce is changing rapidly. When he wrote this there were no social media such as Facebook and very little use of video on the web. On a conceptual level Allen’s book remains relevant but on a technical level much has changed since he wrote it.

Readability/Writing Quality:

This book is easy to read. Allen writes clearly and makes it all interesting. He uses lots of sub titles and organizes the information well. He uses text boxes with supplemental information, many of which contain gems worth more than the regular text.

Notes on Author:

Robert Allen is an author who has written on wealth building for many years. He started out with a book called No Money Down about how to buy real estate for no money down. A great deal has been written over the years about the validity of Allen’s real estate theories. I will leave that to another time and place when we do an author feature on him. For now it is enough to remind the reader that Allen is long on motivation and promises of the possibilities and short on acknowledging what can go wrong, where the weaknesses are, etc. He is a great read if you want motivation and want to stimulate your wealth building imagination. He should never be the final word – to do your due diligence in building any kind of business you need more than a motivational introduction.

Three Great Ideas You Can Use:

1. Once you set up an internet money machine, that is an internet sales system, it operates almost on auto-pilot. It takes little daily attention and if it was done correctly and if you have built a sufficient opt in list your sales will flow in day and night without much effort on your part.

2. The key to building solid and sustained sales on line is to build a good opt in list and to continue to grow it.

3. Good copy – that is, well written sales pages, are the key to turning those potential customers on your opt in list into actual buyers. Practice and refine the art of good copy writing to maximize your sales opportunities.

It is difficult to narrow the list to three. Allen does have a lot of gems here that you need to know from some source if you want to make money off the internet. If that is your interest this book is an excellent introduction.

Publication Information: Multiple Streams of Internet Income by Robert Allen, Copyright: 2001 Robert G. Allen. Published by John Wiley & Sons, Inc.

General Rating:Good