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.

VIX - Volatility index

So has the US stock market bottomed and we get a rally. There is some talk to this front. But let me note that since Feb as the US indices attempted new highs the VIX stopped falling making a divergence with the Equity indices. Now the VIX or volatility index just broke out of its one month range yesterday. So unless the indicator reverses this is a sign that there is more selling ahead in US equities.


Midcap stocks at their highest

Today's ET carried this note From Vetri Subramaniam, so If you have not read it click the link, the highlight is that Large caps appear more safe over Midcaps where the PE re-rating has been faster than earnings...My takeaway. Now Vetri is known to me for Long especially as he was the CIO when I joned Sharekhan and I may say I am here because of him. And there are few people who will tell you like it is. But I am using the story to publish two charts that I put out all of 2015-2016 as the market scaled a top each time to highlight the idea that we should know where we are.

 Mid large cap

This is important because even if I have turned a little bullish over the last year because of the commodities doing well Sugar Metals etc., back of my mind I know where we are. We are in bubble territory and have been here longer than ever before. So if you participate in the market or invest in Mutual funds that are putting your money into Midcaps you need to revisit 1994. That said let the charts speak for themselves

The Nifty to Midcap ration first. Here I use the CNX Midcap that is now called the Nifty Mid100, The lower chart shows the Relative strength of the Midcaps over Large caps. Readings at the upper end of the range have marked many major market highs. Divergences in the Nifty and Midcap index itself have also preceded major market turns. At the 2009 bottom as today both the RS and Divergence coexist making it an important reading.


Now since the above chart only shows you history from 2003 onward it can make you ask questions. So to those who do not know, before Midcap indices were invented there was the BSE 200 created by the BSE to represent the Midcap stocks as a basket. So divergences between the BSE 200 and Sensex were good at giving similar indications. So in the chart below I use the Relative strength of the BSE 200 v/s the Sensex as a ratio to look at where we are. Now we have data going back to 1990 and readings at the upper end marked all the market tops of 1992-2000-2008 and we are there today and rising. The rise from the 2013 low point for the indicator is also one of the slowest on record. It has continued in a small channel even as the Sensex stopped making new highs since 2015. We are today at a near double top to 2015. But the out-performance of the broad market as seen above has kept these indicators rising relentlessly. Valuations as discussed in the piece above match what these indicators are saying about the potential for future performance going forward. We are not in a pretty place no matter how long we stay here. Know it.


JP Morgan Chase

Financials were the most hit yesterday so a good time to look at JP Morgan Chase the best performing bank. The stock achieved 2 Fibonacci targets and so this is an interesting level to consider what is going on. Below we see the bearish alternate to marking a major top for the stock. It maybe a little of the cards but a 5 wave rise maybe retraced to start with.

JP Morgan

You are here: Home Inter Market Analysis