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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.

NSE IT - Sector Index View

Someone asked me on twitter to cover the IT index too. So why not. It is a slower moving index but I used this index as my poster boy for a top call on the IT sector for years. And it has finally rolled over. What was the basis for this view? It was the value wave framework which you can read here http://www.indiacharts.com/icjpages/index.php/indiamkts/valuewave 

Based on this a stock or sector peaks in a 3rd wave on the highest growth phase for it. Then the 5th and final wave long term is on weaker growth. This can be seen for the IT sectors falling Operating profits and profit growth. Infosys used to grow earnings at 100% and now does at 5%. Another feature of this market behaviour is when analysts call an old growth stock a defensive stock, it is in wave 5 long term. Now wave 5 can go up but it is terminal 2003-2016 is a long period for a 5th wave. But it did not go far above 2000, and also did not repeat the performance of the growth years. Worse is if I am right and you go back even 50% of wave 5. The impact on long term investment performance is significant. It was just not worth the exercise. This is the perspective that EW adds to where you are fundamentally in the cycle.

So the IT index ended wave 5 long term and completed waves 1 and 2 after that. 61.8% of the entire 5th wave is at 5572 near the wave D low as a conservative estimate of where the sector could bottom long term. We may review it there.

nseit020717

The near term chart shows wave 3 down in progress and the downward momentum will pick up below 10000. After that 3=1 would point to 8690 and 3=1.618 times wave 1 = 7800. These would both be open.

nseit020717a

Netflix

NetFlix is in wave 5 near the upper end of the channel. It is hard to say whether the pattern is complete but should be in the late stages. Volumes have been falling for a year, and at the lowest level of the last 5.

netflix

US 30 year Treasury bonds

The US 10/30 year notes/bonds fell in 3 waves to a critical support. The recent rise was not clearly 5 waves either. So here is the next possible outcome. Holding the lows that were hit yesterday US bonds may rally again. What maybe developing is a triangle in wave B up and wave e of B can see the bonds push up to 158.70 before heading starting the next wave down. This is a developing scenario and not confirmed yet but needs to be watched out for. If the bonds keep falling then wave 3 down might have already begun.

bonds-290617

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