|  JUL 1992

The CRB Index/Bond Ratio by John J. Murphy

The CRB Index/Bond Ratio by John J. Murphy Veteran technician John J. Murphy, whose trailblazing work on technical analysis and intermarket analysis are classics of the field, has delved into how bonds and commodities are interrelated and then how bonds and stocks influence each other. Now, he introduces the C RB index/bond ratio as another example of how these three market sectors interact, allowing us to determine the relative strength between bonds and commodities. In my last two articles, I examined first the inverse relationship between the Commodity Research Bureau (CRB) Index and bond prices and then the tendency for bond prices to act as a leading indicator for the stock market. Another way to combine these three sectors is to compare the CRB Index/Treasury bond ratio to equities. The CRB Index/bond ratio simply divides the CRB Index by Treasury bond futures prices: ... When the ratio is rising, commodity prices are outperforming the bond market and inflation pressures are rising. When the ratio is falling, bond prices are outperforming commodity prices and inflation pressures are falling. From an asset allocation standpoint, a rising ratio line also suggests that commodities should be emphasized over bonds. When the ratio is falling, bonds are favored over commodities.

by John J. Murphy