Four sectors of the financial market

- Lingering effects of the bursting of the financial bubble, especially in the technology sector;

- The decline in business activity after the September 11 attacks;

- A wave of revelations of corporate business;

- Increased from the end of 2002 geopolitical instability.

Three periods

Studying the picture, it can be concluded that at the present time of a positive picture for the stock market. First, the bond market continued to grow at a higher level (in August 2002). Secondly, the growth of the stock market in May 2003, broke down the line with the trend in 2000 by issuing a bullish breakout. These two factors increase the likelihood of stock market growth, confirming that you want to look for signals on the weekly and daily charts. In general, property stocks outperform bonds stems from the fact that the bond market is more closely related to the market of goods than the stock market, and is therefore more sensitive to inflationary pressures. Therefore, as a leading indicator of the stock market can take ratio CRB / bond, which in intermarket analysis is used as a measure of inflationary pressures.

The growth of this ratio indicates an increase in inflationary pressures, as during this period rising commodity resources outstrips rise in financial resources. Drop coefficient means no inflationary pressures (the price of commodity resources are falling faster than the cash resources).

The figure shows the monthly charts of the index S & P 500 and the ratio CRB / bond. With the dynamics of the coefficient of CRB / bond can determine periods of inflationary pressure on the stock market. Since 1991, there are three periods in which inflation pressures increased.

First period - from 1993 to the end of 1994, the second - from 1999 to the beginning of 2000, and the third - from late 2001 to late 2002 in the first period as a result of inflationary pressures, the growth stocks paused and continued only with the end of inflationary pressure. In the third period of greater inflationary pressures led to a drop in shares. Thus, in the first and third periods of the stock market reaction to the inflationary pressure was normal. Only in the second period saw an increase in stocks amid rising inflationary pressure. This situation points to the fact that the growth of the stock market in 1999 was eyforiynym and fraught with serious danger of collapse. It was sort of the last "breath" in the inflated market bubble that burst in mid-2000. Drop in inflation pressure does not guarantee recovery of the market shares (similar to the situation with bonds), but growth stocks amid increasing inflationary pressure is not justified and therefore unlikely. Analyzing the dynamics of the stock and the relative ratio CRB / bond in the present, we can say that the cessation of growth of inflationary pressure since the beginning of 2003 (on the schedule CRB / bond occurred bearish breakout uptrend line) allows the stock market to start your ascent. That chance was in the stock market since the beginning of 2000 until the end of 2001, but this possibility has not been used since the effects of the bursting of the market bubble and will add to the known events of 11 September 2001.