Intermarket Analysis

Louis Mendelsohn is Interviewed Live on Webfn.com, Sponsored by Weigel Broadcasting and Bridge Information Systems.

Neural networks continuously try to find hidden patterns. like the human brain, neural networks “learn” by sifting through data over and over again to find patterns.
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Webfn: Joining us is Louis Mendelsohn, technical analyst and author of Trend Forecasting with Technical Analysis, Unleashing the Hidden Power of Intermarket Analysis to Beat the Market. Welcome Lou.

Lou Mendelsohn:Thank you very much.

Webfn: You talk about an intermarket approach and how that will be required by traders and investors in the 21st century. By intermarket, you mean what?

Lou Mendelsohn: What we’re doing is looking at the relationships of markets to one another and finding patterns and relationships between markets that influence a particular market that a trader is involved with. And that allows us to make more effective forecasts of what the trend direction of that market will be in the short term.

Webfn: Now why will that have to be the new way of thinking for traders and investors, do you believe?

Lou Mendelsohn: Well, in the last couple of decades, the focus of technical analysis has been exclusively inward looking on an individual market, looking back at its past price data and using a variety of technical indicators to try to analyze that market and figure out what it’s going to be doing in the future. But with the globalization of the world’s economies and the increasing influence of related markets both domestically and globally on each market, that type of a limited analysis is just too narrow. So traders really need to look more broadly at how markets affect each other, how they influence each other and by doing so traders will be able to make more effective trading decisions.

Webfn:Now is this software actually that you have developed and how does it work?

Lou Mendelsohn: It is software. The software’s name is VantagePoint. I first came out with it in 1991. So it’s a program that has had ten years of being refined. What it does is let’s say one market like the treasury bond market. It’s actually looking at ten markets simultaneously and it uses a technology known as neural networks, which is a mathematical tool that can find hidden patterns and relationships in data. And we use that tool to look at those ten markets and the relationships that they have to let’s say the treasury bond market and do that so that we can make forecasts of the trend direction of the bond market, very short term forecasts. We only look out between two to four days into the future and what we do is we are actually forecasting moving averages on the treasury bond market.

Webfn:Why can’t traders any longer rely on single market analysis methods, why is that passé?

Lou Mendelsohn: Well, it’s passé in the sense that it’s just too narrow. The world has become globalized. The markets are clearly affecting one another and to just look inwardly at one market at a time is like having blinders on, and you just don’t get the full picture. I’m not suggesting that single market analysis should be thrown out. It should instead be augmented by intermarket analysis so that you have an intermarket confirmation to what you might already be doing from a single market perspective.

Webfn: Since you are a technical analyst, let me get your technical take on what you’re seeing in the U.S. stock market right now. What’s your take on things?

Lou Mendelsohn: Well, our software has been forecasting, for instance, the Nasdaq 100 and the Nasdaq Composite to be going down, to be negative. In fact over the past five days it’s been increasingly more negative. We are looking ahead four days and over that time horizon we do not see a bottom being made at this point.

Webfn: Good deal. I hope you’re right. Thank you Lou. We have been speaking with Lou Mendelsohn, author of Trend Forecasting with Technical Analysis, Unleashing the Hidden Power of Intermarket Analysis to Beat the Market.