The key word here is "background." Intermarket work provides background information, not primary information. Traditional technical analysis still has to be applied to the markets on an individual basis, with primary emphasis placed on the market being traded. Once that's done, however, the next step is to take intermarket relationships into consideration to see if the individual conclusions make sense from an intermarket perspective.
Suppose intermarket work suggests that two markets usually trend in opposite directions, such as Treasury bonds and the Commodity Research Bureau Index. Suppose further that a separate analysis of the top markets provides a bullish outlook for both at the same time. Since those two conclusions, arrived at by separate analysis, contradict their usual inverse relationship, the analyst might want to go back and reexamine the individual conclusions.
There will be times when the usual intermarket relationships aren't visible or, for a variety of reasons, appear to be temporarily out of line. What is the trader to do when traditional technical analysis clashes with intermarket analysis? At such times, traditional analysis still takes precedence but with increased caution. The trader who gets bullish readings in two markets that usually don't trend in the same direction knows one of the markets is probably giving false readings, but isn't sure which one. The prudent course at such times is to fall back on one's separate technical work, but to do so very cautiously until the intermarket work becomes clearer.
Another way to look at it is that intermarket analysis warns traders when they can afford to be more aggressive and when they should be more cautious. They may remain faithful to the more traditional technical work, but intermarket relationships may. serve to warn them not to trust completely what the individual charts are showing. There may be other times when intermarket analysis may cause a trader to override individual market conclusions. Remember that intermarket analysis is meant to add to the trader's data, not to replace what has gone before. I'll try to resolve this seeming contradiction as we work our way through the various examples in succeeding chapters.
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