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.

Europe Periphery

Interesting Greece and Spain remain in the news and most other markets have not followed up down the same raod. Maybe these two experiments will complete their final day of reckoning with a solution for the rest of the world. But the time for that from a EW perspective is getting closer as both Spain and Greece count as wave (4) completing and wave (5) down probably about to start. Lets see the charts.

Start with Greece the early fall in wave C was overlapped and I continue to mark it as a series of 1-2-1-2 and for that reason the entire decline is not a 5 wave decline as being assumed by some. The recent rally is approaching the 4th wave of lower degree near 834 where a 3 wave advance will complete and need to watch out for the next leg down which could be wave (5) to a new low.

Secondly the chart of Spain. Like Greece it has also broken below the 2008 lows eventually but not by as much. The structure has a few alternates but overall looks like a big H&S and broke the neckline in May. The recent pull back is trying to come back above the line but wave count wise is an expanded flat that is near completion in wave 4 position. 860 is a strong resistance from the wave IV of lower degree below which wave 5 down can resume to a new low. With these markets back in the news we need to see if this situation develops, and since wave 5 down should mark the end of bear markets for these two markets that have started off creating chaos will it also provide the final solution or make obvious the path ahead for others lets see.

Dollar Crush Gold Rush

Interesting times ahead for the Dollar as the short term momentum indicators turned up into buy mode. What it looks like is a triangular pattern with breakout confirmation above 74.7. That would mark the beggining of a major dollar rally which can have the same effect as the dollar rally of 2008.

The pattern back then was similar [see chart below]. The impact was that between April 08-Hune 08 various commodities started topping out. Gold topped in March and crude continued till July and was the last one. This time round crude topped in April and Gold has continued till July. But the inversion of the lead lag might exist just to confuse. Its similar to the idea that US topped in Oct 07 and India in Jan 08, where as this year India topped first in Nov 10 and US in May 11. Lead lag inversion might be just a phenomena of this move with the same consequences once a trend is established.

Another interesting feature among correlations was that Gold topped in Mar 08 the first time when the US market made its wave 1 down bottom ie completed its first wave down in the bear market. Last week the Dow completed a 5 wave decline and is now pulling back to the neckline as was indicated in my posts. So has gold finally topped? as it did back then. The pattern is very similar and the wave counts can fit in. That gold reacted from the upper channel line as shown below one has to consider the two alternates below that allow a 5th wave to end till short term bullish readings show up again.

The rising dollar would put pressure again on other asset classes as well once the short term bounces in equities and metals are over. Also note some time back I tried bullish assumptions on Silver and it rallied but yesterdays fall from 61.8% retracement, close below 20dma and overlap with the high of 11/08 at 39.77, makes me suspect that wave B as originally anticipated completed in a rising wedge as shown below and now wave C down in Silver to $29 might start. I am not saying it will happen but I see this as a risk the confirmation might be if the wedge trend line at 38.65 is actually broken. If the dollar does start a rally it would mean that the dollar expansionary policies are unlikely to resume anytime soon [read QE, Bailout etc.]

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