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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.

BSE Small Cap index

The BSE Small cap index has remained below the 2008 high to date. All the legs overlapping makes for a clear wedge pattern in wave 5 from 2010-2016, The recent breakout and failure in wave E now completes what we call a throwover [a false breakout], that completes the long term topping process.

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US 10 year T Notes

US 10 year treasury notes continued to fall despite oversold readings and that mostly happens only when the trend is strong. At a larger degree that is the case. Even though we maybe in wave 5 down any bounce might now be restricted at the blue trendline that we just broke. In other worlds the bond market sell off is just getting started. We are in wave C down that might not end at C=A which is slightly below the point of wave A. If it extends it could go to the next swing low near the low of wave D at 115 . So continue to expect lower tops and bottoms in Bonds. Any rally from oversold conditions maybe short lived.

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Bonds and Equities

I have discussed the inverse correlation of US stocks and bonds. Now here is something interesting. When was the last time the US 30 year bonds crashed driving their daily RSI to extreme territory. On 13/06/2007 the RSI dipped to 13.66. That is the lowest reading since then. The second lowest reading near 16 was reached last night. That is weeks before the US made the 2007 bull market top and crashed for the next 18 months.

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So the extreme oversold reading we are getting now has similarities. When this trend in bonds reverses it may reverse many other trends like the one in the dollar and precious metals as well. Everything that is moving one way on falling bond markets may take change course.

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This is what the great inversion should look like once the Dow is done with completing wave E of what is looking like an ending diagonal till now

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Ok that is not the only time we have seen a bond crash how about the Y2K bubble? A month before the final top in Y2K the 30 year bonds read an RSI of 8 and then bonds bottomed by 19/01/2000. In 2000 that move triggered a dollar rally as well that continued till the end of the bear market. First here is a chart of the Dow

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And then here is the dollar on those 3 dates. Which way will the dollar go from here? A breakout for sure and a trend should follow, which ever direction is next it will be a trend.

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