Thursday, September 6, 2012
Defty / Dow Jones Ratio - Weekly Chart
2 important ratios we track to know out/under performance of India Nifty Index vis-a-vis US Dow Jones Industrial Average. First is plain BSE/Dow Jones ratio and second is Defty/Dow Jones ratio which takes in to account USDINR currency rate. Today we will discuss latest Defty/Dow Jones Ratio.
Defty is India's NSE Nifty Index in USD terms. NSE Defty is equivalent of any US listed India ETF so it is very helpful in understanding return of Indian Equity after considering USDINR exchange volatility.
Secondly, We must remember these ratios give you just relative out/under performance NOT absolute. This means rising Defty/Dow Jones ratio suggests Defty will out-perform Dow by that much value.These ratios are also used by funds using long/short strategies - like Long BSE Short Dow etc.
We give last 2 years Defty/Dow Jones ratio weekly chart:
If we see above Defty/Dow Jones weekly chart it clearly suggested relative under-performance of BSE against Dow starting Oct 2010 and continued to fall up to Dec 2011. See how rally of Jan -2012 ended when reaching upper end of falling trendline - a strong resistance. However, We have not yet seen ratio falling below its Dec 2011 low of 0.24 rather we see strong range bound movement since Dec 2011. Now, Crossing above 0.26 will suggest bullish sign (out-performance vis-a-vis Dow) and crossing below 0.24 will suggest further downward target to around 0.21.