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International Market by Martin Pring’s InterMarket Review (April 2013)

US vs. The Rest of the World

The counter-cyclical rally in the relationship between the US (SPY) and the rest of the world (EFA) looks as though it might be terminating. This view is based on the fact that the short-term KST has started to decline and the ratio is just at resistance in the form of the 200-day MA and extended trendline. We need to be a bit careful though, because this relationship tends to move in tandem with the Dollar Index which is in a primary bull market.

Europe

The Europe 350 ETF, the IEV, has so far withheld the challenge presented by events in Cyprus, since both KSTs continue to rise. However, if the price and the RS line were to drop below their respective trendline breakout levels, this would not bode well for European stocks in general.

Emerging World Markets

Europe may be bad, but the emerging world is acting much worse! As with the IEV, both KSTs are positive but the RS line for the EEM (Chart 37) has just ruptured a major up trendline. Charts 38-40 show three markets that should be avoided. Chart 38 represents the region of Latin America, where you can see that a major RS trendline break has taken place; Mexico represents a bullish exception. Chart 40 indicates a breakdown in the relative action of the UK ETF, the EWU. Finally, trouble may be brewing in the Korean peninsula because the relative action of the Korean ETF has completed a 4-year top.

Japan

Ending on a more positive note are charts 41 and 42, both of which feature Japan. In the case of Chart 41, the Japanese ETF, the EWJ has just experienced an absolute and relative KST bull signal and both series have violated down trendlines. The current overstretched situation may well result in a correction of some kind, but the longer term picture looks positive. Chart 42 even offers the possibility that the secular bear may be in the process of terminating as the price oscillator has reversed to the upside. Unfortunately, this series does not have a very lengthy track record so we cannot be sure of its accuracy. However, if the Nikkei itself can manage to better its 1990/20?? down trendline, that would likely result in a valid signal confi rming a new secular bull. After 30 plus years, it’s about time!

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