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Inter Market Analysis

Inter market analysis is a series of articles studying related segments of the market to identify lead lags between trends in each segment. This can often forewarn you of impending changes in trend and allow for planning of required action based on it. For example midcaps v/s large caps, currencies v/s commodities and US markets v/s European markets and so on. In a global environment inter-market relationships are not restricted to a country but between countries and their respective asset classes as well.

US 10 year T notes

The bond market has been rallying as expected but the decline in US stocks so far feels muted. However this should change soon if the rally goes on in bonds. The pressure on US indices is visible but the decline so far is not as big as we saw in Europe. The US is waiting for its own triggers maybe. The bond rally does not appear complete in any respect so far and is likely to go on.

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BSE Metals index

The Metals index fell far enough to say that we have completed a 5 wave advance and wave 5 is not extending. Now it is time for a deeper correction before the larger trend up can resume. A dip back to wave 4 of the rise is normal and that is at 9500 for the index from 11366, the close today. So that is a close to 20% decline from here still on the cards before we look for a bottom. The near term chart shows a potential head and shoulders top pattern whose neckline broke today.

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VIX - Volatility index

The US CBOE Volatility index best known as the VIX has been falling for a year now, with interim bouts of rallies in between. So are we seeing another garden variety bump up in volatility? Given that some of the news is geopolitical it may appear so. But purely on weekly charts the first half of 2015 saw a 5 wave contracting triangle which coincided with a contraction in the Bollinger Bands and then Vols expanded sharply upwards in the months ahead. Since then once again we have witnessed a triangular pattern with five waves that has now ended in a contraction of Bollinger Bands. So the contraction does make it viable for a larger expansion to follow. One that could break out of the triangle and see new highs. This contraction in bands is a good reason to pay extra attention to volatility expansion this time around.

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