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U.S. Stock Market by Martin Pring’s InterMarket Review (April 2013)

Our Stock Barometer continues moving higher to its maximum bullish reading of 100%.

The arrows in Chart 10 show that on each of the previous occasions when this model first hit the 100% level prices subsequently moved signifi cantly higher. Certainly, the uptrend of the S&P and other major averages is positive, whether measured on a nominal or inflation adjusted basis.

By the same token, Charts 10 and 14 indicate that each series is running into resistance as flagged by their respective 2000/13 trendlines.

The KST for the stock/bond ratio in Chart 11 is positive and suggests higher equity prices, as it has tentatively broken above its down trendline. Upside reversals in the KST for the ratio between the S&P dividend and Moody’s AAA corporate bond yield has triggered thirteen sub-zero signals since the 1950’s and each one has been followed by a worthwhile advance. The latest reversal has also been followed by a rally, but based on the magnitude of previous instances; it looks likely to have additional ultimate upside potential.

The red highlights in Chart 13 represent recessions and each one since 1966 was preceded by a decline in our Master Economic Indicator (MEI) below zero. The double dip experience of 1981 was associated with a rapid rise in short-term interest rates and was more of a coincidental experience. Those rates are currently flat and the MEI is comfortably above the equilibrium level, which argues well for equities down the road.

Chart 14 compares infl ation adjusted prices to a momentum series comprising of a combined 18-month ROC for bonds, stocks and commodities. When it has been possible to construct a down trendline for this indicator and the line is penetrated, a spirited equity rally followed. Last month’s new line was violated, suggesting higher prices.

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