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

U.S. Stock Markets

Our Stock Barometer remains at a bullish 100% reading as do the vast majority of the longer-term indicators. The Total Return Model (Chart 13) fell slightly in June, but remains comfortably above its zero bull/bear demarcation line. Nevertheless, the S&P deflated by M2, in the center panel of Chart 14 has run into resistance in the form of its secular down trendline. That’s happening at a time when the 24-month ROC is barely able to move above its equilibrium level. In the past, positive trendline and 96-month MA crossovers have confirmed the termination of asecular bear market, so the weak momentum may be warning us of vulnerability ahead.

Intermediate Indicators

When we take a closer look at the intermediate indicators a mixed picture presents itself. For example, the intermediate KST for the S&P Composite has just peaked out from a very high level.

The intermediate health, displayed in the bottom panel of Chart 15, measures the percentage of a

basket of Dow stocks that are experiencing rising intermediate KSTs. This series usually leads the

intermediate KST itself and continues to point south. It is just below the neutral level and is

hinting at lower prices. Also, the St Louis Stress Index, comprising 18 credit market indicators, tracks movements in the stock market reasonably closely. It has just experienced a marginal break of its 2012/13 up trendline. Since the short- and intermediate KSTs are also declining a more decisive break and 65-week EMA crossover are likely. Note how this series led the 2007 top and 2009 equity bottom but has so far coincided with the recent stock market high. Brokers have a good record as a leading sector. As the market discounts future economic activity, so these stocks discount the market. It is of more than passing interest that the Dow Jones Broker ETF, the IAI, has recently completed and broken out from a base on both an absolute and relative basis. That action suggests that once the current intermediate correction runs its course, prices will continue to rally.

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