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.

Bonds v/s Dollar

I am rubbing it in but I made two posts on this in the last 2 months and i will not repeat everything there so here is a quick reference. 

This explores the short term deviations between US bonds and the Dol,lar but the near term they are moving up and down together

This post made the outlook that is playing out that both markets will rise and then fall together. The rise part completed and bonds started to fall first, the dollar is at 61.8% retracement and near 92.50 may join the decline in the dollar.

So here is a still longer term chart from 1980. You should know that most theory and writings are made based on the past being extrapolated to the present. The inverse relationship between the dollar index and US bonds was a pre 2003 pattern. I think it has to do with Globalisation and the greater holding of US bonds by non US investors. In other words it is nice to say that higher rates attract money pushing up the dollar but it is illogical. If foreign money is involved buying of bonds means yes dollar rises as money flows into the US but bond prices also rise on the buying of bonds. So logically in this case they should carry a positive correlation. And they mostly do for the last 15 years. They do not for short term periods of time especially when the dollars major trend is changing from up to down or down to up, due to a lead lag between the two assets turning points. This has been circled on the chart. So the dollar sose from 2008-2016 and so did bond prices. During the last quarter of 2016 however bonds started falling first leading the way making the relationship appear inverted. But later both were falling. 

bonds 020518

These inversions also happen in the short term. So starting 2016 both bonds and the dollar are falling but in the short term many a time they appear to move in opposite directions. as marked on this chart. So during the last two weeks we witnessed inversion again. But it will not last, the larger trend for both assets is lower, and the dollar has retraced 61.8% of the Oct-Jan decline, so the dollar is due to join the bond markets lower, and that can often be a self reinforcing trend as a falling dollar makes US bond markets less attractive to foreign investors.

bonds 020518a

US 10 Year Treasury notes

US 10 year bond prices still indicating lower prices after the recent bounce on Elliott Waves. This means higher bond yields near term.

notes 020518

BSE Metals Index

After turning on Metal prices I have to relook at the metals index. I think starting a year ago when the Metal index started a 3rd wave I was expecting it to be equally large to the first. The extentions have not played out despite rising metal prices recently. The Alternate is below where 5<3<1 in the wave structure and we have broken the rising trendline. Th recent rally then was a pullback to the trendline. Monthly momentum remains in sell mode. So till new positive evidence shows up. Wave y=w can take us to the 38.2% retracement mark or extend to 50% near the wave 2 low. In short we are looking at a further correction in Metals now. This week prices closed below the 20dma after a 61.8% retracement at wave x. 

metals 280418a

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