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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 VIX - Volatility index

Does low Volatility matter? Two weeks India VIX reported a very low reading and we did get a broad market correction. But does the lowest reading in history mark a major top in markets. On  twitter there was an exchange that IV rises before a top. Yes this has happened many times and could almost be true as gospel. So let us look at the chart below of the US VIX It made a bottom 1993 and rose from there for years. The final top for the markets was in 2000, 7 years later. It bottomed again in 2006 and the final top for the market was 10 months later in 2007 [S&P). Now the trendline of those two lows was kissed this month. Maybe we have a new low or bottom in VIX and volatility only rises from here. 7 years and then 10 months are hardly any time correlations that we can draw as to how long after a bottom in VIX can we get a top in equities. It is true that short term rallies in VIX are associated with short term correction in equities. What is not clear is the long term relationship. All that we should think now is that this is an unusually low reading for the US VIX and a US stock market correction is the least you can expect. What it might mean for the longer term would require a long term analysis of the US equity indices themselves.

vix-250517

Realty Index triple top

The Realty stocks index just topped near the trendline of the highs from 2012. What this means is that the entire 2012-2017 pattern is probably a long term triangle and wave B of a larger decline. This rally completed wave e of B within the triangle and from the recent high of 2129 we should head to 609 in wave C down based on C=A. That is a 70% decline for the realty index on this simple equation. So people dreaming about the turnaround in the realty stocks into a bull market need to think what they are smoking unless they are confident that the recent highs can be taken out fundamentally.

realty-240517

PSU Bank index

The PSU Bank index is at the upper end of its range since 2010. Draw a trendline from the highs and we just about kissed it. My sensex is that wave Z down started as shown. This is the last and final wave down for any corrective phase. And while it does not have to be large and can end at the neckline my sense is that it will extend as shown and end with an ending pattern. The entire recapitalisation of a sector is not possible without major write downs and declines in book values and rise in the equity base. This is just logic that anyone should get. What are you thinking? In any case we look at the sectors investment potential only after wave Z down is complete. Right now the upside is hardly any in my understanding of the trendline resistance.

psu-240517

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