Money rotates among different assets. We have discussed this theme in the past. When money moves out of equities it has to move to some other asset class. Gold, Currency, Bonds, Commodities are various assets.
Let us see the correlation between Nifty and the Dollar Index. See the chart below.
The orange line shows the Nifty with the scale on the left. The Blue line shows the inverse of the dollar index with the scale on the right.
See how perfectly correlated these 2 lines are since March when Nifty bottomed out. In other words as Nifty has been rising since March, Dollar Index has been falling.
It is very useful to keep an eye on various asset classes to help in our analysis. Even if we are only trading Equities, monitor the trends of the major assets.
