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Martin Pring's InterMarket Review - International Markets (Jan 2013)

The primary trend of global bonds remains up and that for commodities down. However, both have reached critical support areas which could make for an interesting fourth quarter.

The ratio between the US market and the Europe, Australia Far East Index (EFA rest of the world) has now fallen below its 65-week EMA and will likely find resistance there for any rally attempt. Momentum characteristics tend to be different in a bear market. That's how we classify this relationship because the ratio is below its EMA and the long-term KST is bearish.

A bear trend, prices tend not to respond to oversold conditions as sensitively as when the primary trend is bullish. That means that we should not expect the oversold short- and intermediate KSTs to generate much of a rally. In such situations it is usually better to focus on the main trend, which in this case is against the US.

Europe

The European ETF, the IEV, continues to look positive with a strong relative strength breakout which is also supported by a nice momentum reversal.

Asia Ex Japan

The Asia Ex Japan ETF, the EPP, has moved to the upside, but the RS line has had diffi culty in maintaining its breakout. However, the very positive RS KST suggests that once late 2012 gains have been digested, this ETF will resume its RS advance.

Japan

Last month saw an upside breakout from the Japanese ETF, the EWJ, which has succeeded in violating two trendlines. While we are expecting higher prices, we would be more comfortable in that view if both KSTs, which are currently straddling bullish territory, could experience a stronger reversal to the upside.

India

We recommended the Indian ETF, the INP, when it broke above its dashed 2011/12 down trendline in Chart 36. Now it is below resistance on both an absolute and relative basis. Upside breakouts are likely because both KSTs are in a fi rmly bullish mode.

China

The Chinese equity market, long being one of the world's worst performers, has started to come to life. For example, the FXI has experienced a major upside breakout on both an absolute and relative basis. The recent buy signal by both KSTs indicate that it is still early days in the bull market. We think a worthwhile move is in the cards, but that, when viewed with the benefit of hindsight, will turn out to be part of a gigantic trading range.

Last month saw the MSCI Emerging Markets ETF breakout on both an absolute and relative basis. Chart 3 shows that momentum has also turned positive as global investors ratchet up their appetite for risk.

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