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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

US Yields on the 10/30 yar are going to be very important this week after Friday's market action. Prices started to drop after what looks like a 3 wave bounce in the ten year note that could not get it past the 40dema [green average]. We could then be in wave III of 3. This can mean that the big jump in yields seen on Friday was the beginning of a larger trend. If there is follow up selling in the bond market yields may rise a lot. However, last week I was considering the alternate, that yields would actually fall. So we are at an inflection point and one of the two would be proven strongly right soon. If bond prices do not sell off quickly then the bullish case for bond prices last week would get further enhanced. But right now bond yields are rising and have not yet clearly reversed trend so the risk remains for a big jump up in yields.

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US 30 year T Bonds

The US Bond market has started a rally without breaking down, this could discard the immediate crash case for the bond market. Meaning that the alternate could kick in I.E. wave B is not over and still forming. Wave C of B then is 2 weeks old and could last many months retracing up to 50% of wave A in the rally.

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Note while a bond sell off that is sharp would pull everything down anyway, Bonds also remain mostly inversely correlated to US stocks. The chart below of the Dow and 10 Year notes shows this. Pink lines show periods of bond rallies that cause US stocks to either fall or underperform. So if wave C up has indeed started then it maybe an early signal of another period of US equities under performance coming up. But on the other side it means that the expected bond market sell off into a third wave down is for now off the cards, despite a much expected rate hike into the year end.

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BSE Midcap Small Cap

The BSE Midcap index is very close to the upper end of the yellow channel line near 16935. Support is at 16560. Elliott Wave wise all the rallies are a series of 3 waves up for months now. 

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The Small cap indices have closed positive for 11 consecutive sessions now. It too shows that we are now close to the upper channel line and the last 4 days are a series of doji patterns. A doji shows a gap to higher prices with few gains being made during the actual trading session. Upper end at 18156 for the BSE Small cap index. Support = 17535

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