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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 30yr Bonds

The US 30 year bonds should have now completed 5 waves down Long term and started the Most powerful counter trend move up for the year. Early days but the rally should continue and yields will go lower on the 10/30 year rates. Sentiment is also poised accordingly with the readings showing even more Short Positions now than they did at the wave 3 low in Dec among speculators, based on CFTC Positions

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Tech Sector and the Dollar

You often hear the argument about the USDINR going up driving tech stocks or the INR getting stronger driving down IT stocks. in the near term I often think that argument does not hold because the USDINR mostly goes up when fund flows are negative into equities and so it involves selling pressure on stocks. So Tech stocks are unlikely to go up during an equity decline. But later once the devaluation is done there is a stimulative impact. So the right way to look at it might be longer term trends of the dollar. Even better how do tech stocks do relative to the Sensex during such a period. I have never liked the street argument that favours investment in tech stocks as a defensive? A growth sector is now a defence against a poor market? Has that really worked? During 2003-2008 the last bull market the IT sector was one of the worst performing sectors, in the sense that on a relative basis they did not go up as much as the Sensex.

So here is the relative chart of the BSE IT index v/s the Sensex. It topped in Y2K and has never looked back. In fact the RS was at the lowest level in Jan 2008. Now I need to remind you that 2001-2008 was a dollar bear market [or Euro bull market]. And 2008-2016 was a dollar bull market. This is also a period that saw earnings growth rates for the tech sector majors collapse along with their profit margins. That is not the sign of growth but of a divergence in performance that is consistent with a long term 5th wave, as explained in the Value Wave cycle theory for stocks.

So it has been my forecast for a year since we hit 102 that the Dollar is topping out. The coming years will be more about the Weak dollar. What does that mean for the Relative Performance of India's Technology sector? Look at the last one year as a signal. The RS has dropped. The Indian Tech sector is the last place you want to be, and this has nothing to do with Trump, Trump or no Trump!

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BSE Metals index

Weak dollar - Long Inflation - Bullish Commodities/Metals that is the view I have maintained for a while. 

So with metal stocks up today is the correction over? The expanded flat was pointing to lower levels for the BSE Metals index however what if we have a running flat? A running flat means that prices hold the rising channel support during a corrective pattern. Prices stopped at the lower channel yesterday and are up today. So if this level holds we may start the next wave up for metal stocks from here itself. Wave 3 up would then have started. 14420 would be where 3=1, from yesterdays close of 11570. 

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