Another series of intermarket analysis …
Today we will focus on what is the cause of all the movements in the market cause the overflow of big money … interest rates and currency (US dollar).
Interest rates (important to change them) determine the value of money. Below are two charts: the yield of 10 year US bonds and the currency pair EUR/USD.
Growth rates leads to an increase in the national currency, the fall – a fall.
The image below clearly shows this relationship, but with a slight delay, ie, large capital needs more time to redistribute, as it takes time to the banking sector (the supplier of cash in the form of loans) to respond to the change in interest rates.
- growth rates up to 2007 led to a rise in the dollar (falling of pair EUR / USD) in 2008;
- growth rates in 2009 and early 2011 led to an increase in the dollar in 2010, and since mid-2011, respectively;
- increase in interest rates resulted in a rise in the dollar by the end of 2013 in 2014 (coinciding with the fall of the ruble by 50%);
- growth rates at the end of 2016 and the stabilization of this year could lead to a subsequent increase in the dollar (the same as the payment of dollar liabilities that will need to pay in dollars, thereby selling the national currency (in this case, in rubles), and coincides with the end of the year, “New Year’s rally”).
The analysis is not so difficult, but it is very important to start the analysis of the world situation from the outset.
Next will be more interesting …
Slowly, but on large volumes, reached $3.05 and stopped.
What happened from the end of October / beginning of November is the rebuy of the Commercial of its huge short positions on Copper. Further, expect the movement to $3.2
On this movement it will be necessary to observe the open interest …
In a previous post about one of the dependencies (relationship) in intermarket analysis suggests that the bonds sagged seriously (it is the price of bonds, rather than the yield), while the price of the futures /ES continued to grow.
Last week, futures /ES dropped to 2560 – and that’s working out of this relationship.
To determine the time of the turn of the /ES it was necessary to follow the tape (every day) and watch several other tools (which will be discussed later).
All financial instruments are interconnected – money (by themselves) is not needed by anyone – you only need what you can buy (somewhere to invest). So in the market of futures, bonds, forex and raw materials – money (huge amounts) flow from one asset to another. And these marks are visible!
Short positions Commercial bought off a quarter (starting in September 2017). Gold stabilized at around $1270, after the price went to conquer the nearest $ 1,310 extreme.
For a set of net shorts, gold needs to raise the price to at least 1300, attract new customers, sell them goods and continue to wait for the price drop.
Short position of the Commercial group (most likely) will start to fall by this moment.
We are waiting for the development of the situation …
Oil has grown to $ 58 (one strong move), while the net position of the Commercial has become even shorter (and this is happening on the growing open interest – we expect the price stabilization and a sharp fall (as in February 2017).
Now we will talk about the relationship between the debt market (/ZB) and stock markets (/ES).
Dependence is not clear, but the analysis is quite interesting – for growth /ES classics must be confirmed by the increase /ZB.
But in practice this does not happen often. From my experience of trade (both intra-day and in the interval (month/quarter) noted the following – first is /ZB, and then pulled /ES.
The highlighted areas below (except for the second-order) one can see that during the fall /ZB, /ES initially attracts new buyers, stabilizes and begins to fall (both due to stop-orders customers, and due to the new sell-stop orders).
On intermarket analysis, information will be received gradually (I do not have much time yet).
An interesting point is the following: The open interest is not reduced and Commercial Group net position declined.
That’s how to work out this “interesting point” of entry for Oct 22, 2017.
To date, the long position has almost doubled, slightly open interest confirms that a set position, the price is not fixed below local minimums – it all adds to the chances of price increase, or at least the price bottomed)))
Copper has met our expectations … further two options, either a rollback to the previous high or a flat – you need to wait for the next reports, but overall the short position is quite substantial, to zero it, the price should go to $2.8- $2.9.
Futures on VIX are again in a flat state, still in divergence with the S&P500. The position of Commercial decreased (with the reduction of open interest). Further, we can expect the quotes stabilization in the range of $9 – $11.5.
Commercial cuts short positions in the gold market (this is confirmed by a reduction in open interest).
The dollar has been growing for the past two weeks. For a set of net shorts, gold needs to raise the price to at least 1300, attract new customers, sell them goods and continue to wait for the price drop.