Crude and Sensex – Inverse correlation a Myth! By Waves Strategy Advisors. For more information visit www.wavesstrategy.com
Is there really any inverse correlation between Indian markets and Crude prices??? We are showing Crude (MCX) in INR and Sensex weekly chart which clearly shows how prices of both these asset classes have been moving since July 2008. The chart itself is self explanatory and challenges the logical perceptions of many people who think Crude prices impact Indian stock markets directly and is a culprit for poor performance of Indian equities in 2011.
Crude and Sensex Weekly chart:
We can see that Sensex had started the downtrend in Jan 2008 and Crude joined the party in July 2008. From July 2008 both Sensex and Crude fell in lock step manner and made a low in Feb 2009 “together”.
Since late Feb till November 2010 the rally continued again in a lock step manner and the period of sideways consolidation, from October 2009 to May 2010, had very high correlation. In fact one could have even guessed what Sensex direction would have been during that period by looking at movement of crude.
This period of high correlation continued till November 2010 and Indian markets again lead like in 2009 and started falling prior to Crude. After 4 months of opposite direction, Crude joined the Indian markets down trend in April 2011 and continued to move in sync till October 2011.
In short, we can clearly note there have been more periods of direct correlation between Crude and Sensex and the facts clearly outweighs the common belief / perception of inverse relation between Indian markets and Crude prices.
In short, we can clearly note there have been more periods of direct correlation between Crude and Sensex and the facts clearly outweighs the common belief / perception of inverse relation between Indian markets and Crude prices.
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Dear Ashish,
ReplyDeleteInteresting post.One reason for the direct correlation could be the connect with Quantitative Easing. Whenever a QE or equivalent program hits the market, money flows out into everything including commodities and equities.
One particular instant of note is the latest QE effect.This time round crude was prevented from rising higher, by release of more supplies from the Strategic Oil Reserves. That it happened immediately after the QE, is significant. Evidently someone wants equities to go up but not inflation stoking crude, especially so close to Presidential Elections in the US.
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ReplyDeleteBest regards and good luck for your trading