Focus On  |  JUN 2002

Working Money: Gibson's Paradox by David Penn

Gibson’s Paradox by David Penn Can an old gold-standard truism tell us anything about stocks and bonds today? One of the more helpful tenets of intermarket technical analysis has been the rediscovery of the leading relationship between stocks and bonds. In most market conditions, stock prices tend to follow bond prices. While there was a significant lag from time to time, this pattern held up remarkably well for most of the 20th century — so much so that it has become almost a truism among those technical analysts who include intermarket study in their observations. As John Murphy wrote in his classic Intermarket Technical Analysis, ""Since bonds and stocks are historically linked together, technical analysis of one without a corresponding analysis of the other is incomplete. At the very least a stock market trader or investor should be monitoring the bond market for confirmation.""

by David Penn