Intermarket Analysis for the CMT Exam: Cross-Asset Relationships

Intermarket Analysis on the CMT Exam

Intermarket analysis carries 15% weight on CMT Level 2. 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.