Of stocks, currencies and commodities

If you are trading stocks with big money and are interested in knowing how the global money flow works then you need to move your horizons beyond the universe of stock specific action and understand the global play between bonds, stocks, currencies and commodities.

 

Smart money which trades all of the above is known to move in and out of the above mentioned and a small weekly study keeping a tab on the inter market associations will definitely help in your broader understanding of the financial markets.

 

At Vtrender we track the Nifty and the bankNifty along with the USDINR in the currency space as well as Gold, silver, copper and crude and natural gas in the commodity sphere.

 

Here's some charts of the Nifty, the USD and the CRB.

 

For those of you who aren't familiar with the CRB index for commodities it is spelt here- http://en.wikipedia.org/wiki/Thomson_Reuters/Jefferies_CRB_Index

 

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The charts illustrate the inter market relationship between stocks, USD and the CRB.

 

Notice the inverse relationship between CRB and the USD.

 

Stocks are driven by not only the dollar but to some extent by commodity prices. When commodities start to surge too high they act as a drag on the economy and consequently the stock market begins to stagnate.

 

In particular one has to take a careful look at rising crude prices.The surge from $ 50 to $ 100 in 2007 followed by a further move to $ 150 almost guaranteed that the stock market would not sustain the highs.

 

The charts above show that the CRB has some more to rise and the USD some more to go down.The difference this time around is that the liquidity flow is not just from QE but also LTRO which should make the commodity pack the better equation for savvy traders to park their funds.

 

The rally is stocks and commodities should continue through 2013.