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.

Relative Rupee

The relative rupee is a USDINR divided by the dollar index and measures the relative performance. A rising levels beyond a point can be inflationary. At the same time a decline shows when the usdinr is under pressure. Since 1998 this indicator [green color] was in a rising channel and I showed in many times over the years. Last year however it broke out of the upper end of the channel and so I have redrawn a more steeper channel to encompass the post 2010 movement which fits well. On the chart I have marked arrows to show that we are again at the lower end of the redrawn channel and a period of underperformance is over. The USDINR should start playing catch up with the dollar and could again at the end have its inflationary impact as well.


Capital Goods

Capital goods - this index is difficult because all my analysts think we are in wave 5 up for the sector index or its components bu the way that I count it I think the entire one year rise is 5 waves, the recent decline was wave A and we have retraced 61.8% recently and might have ended wave B, above 61.8% i would have to align with the bullish 5th wave view but till then let me keep my fingers crossed, and yes this index has high reflection of the winner in the sector Larsen.



The health care index or Pharma index made a triangle in 2012 which is usually wave 4, since then the search is on for wave 5 to end.


Recently prices broke out of the rising channel into an even steeper channel which usually happens in explosive final 5th waves. Now at the upper end of that channel there is room for prices to go back to the lower end. If the lower end is somehow broken then wave 5 has ended, and we could have a longer term top. Else the decline would be wave 4 again. In case you did not know the overbought state, RSI daily = 90, weekly= 84, monthly 83 and quarterly 88. We are in bubble territory but there is no reason why we cant have a 90 reading on all one day, till the trend reverses. 


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