A 2005 Forecast Using

Intermarket Analysis and the

Business Cycle
By
Martin J Pring

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The Market Cycle Model

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 Market Cycle Model
Short-term trend
2-6 weeks

Intermediate trend
6-weeks-9-months

Primary trend
9-months-2-years
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NASDAQ Composite

Short-term KST

Intermediate KST

Long-term KST
1. The Financial Markets and the
Business Cycle

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Composite Economic Indicators (KST)

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 Idealized Business Cycle

S
Economy Growing
C
B

Equilibrium

C
B

S
Economy Contracting

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 Double Cycle

S
Economy Growing
C
B

Equilibrium

S
B C

Economy Contracting

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 Three Financial Markets
Commercial Paper Yield (Inverted)

S&P Composite

CRB Spot Raw Industrials

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 Three Financial Markets
Commercial Paper Yield (Inverted)

S&P Composite

CRB Spot Raw Industrials

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2. Introducing the Six Stages
of the Business Cycle

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 Idealized Business Cycle
1 2 3 4 S 5 6
C
B

B S Commodities
Stocks
Bonds
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 Idealized Business Cycle

Deflationary

Inflationary

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3.The Secular Trend Dominates
Everything.

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Secular Market Cycle Model

Primary trend
9-months to two years

Secular or very-long-term trend

12-25 years
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• Bond Secular Trends

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 Government Bond Yields 1910-2005
US Bond Yields Secular
downtrend
25-years
Secular uptrend
40-years

Secular Downtrend
30-years

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 Government Bond Yields 1946-1982

Bond Yields

Secular uptrend

…bear markets

Bull markets are longer and have greater magnitude than..

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 Government Bond Yields 1980-2005
Bond Yields

Secular bear market

Now it’s the bear markets

that are long and have
greater magnitude.

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US Government 20-year Bond Yield

B
 Government Bond Yields 1910-2005
US Bond Yields Secular
downtrend
Secular uptrend

Secular Downtrend Trading range

Still below 72-month MA

Trading range

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 Government Bond Yields 1910-2005
US Bond prices

96-month MA
advanced 10 months
Trend Deviation (96/12)

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 Government Bond Yields 1910-2005
US Bond prices

Trend Deviation (96/12)

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 Government Bond Yields 1910-2005
US Bond Yields

Trendline and MA increase

the significance of the
resistance.

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• Commodity Secular Trends

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 Commodity Prices
Commodity Prices Secular Trading Range
100 100

Secular uptrend
50 45-years 25-years 50

Secular
uptrend
20-years Secular
Downtrend
15-years

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

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US Commodity Prices
US Commodities

240-month ROC
 Government Bond Yields 1910-2005
US Bond Yields

US Commodity Prices
• Stock Secular Trends

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P/E Ratio and Secular Turning Points for Equities

2
1 3

A B C

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 US Stock Prices 1900-2005
Stock Prices 4

3
Secular Trading Ranges
C
2

A Secular uptrends
B

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US Stock Prices

Trend Deviation (3/12)

4.How to Recognize the Stages

1. The Barometers

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Government Bond Yields vs. the Bond Barometer

Govt Bond Yield

Bond Barometer

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 S&P Composite Vs the Stock Barometer

S&P Composite

Only losing buy

signal in 50-years.
Stock Barometer

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Almost bullish
The Barometers vs. the Stages

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How to recognize the Stages

1. The Barometers

2. Using other indicators

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 The Adjusted Discount Rate
15
------ Stage I
------ Stage I I
Adjusted Discount Rate
------ Stage III
------ Stage IV
10 ------ Stage V
------ Stage VI

First hike almost always takes place

at the start of Stage IV or V.
600
500
400
300
200
100 KST
0
-100
-200
-300
-400
-500
-600
1950 1960 1970 1980 1990 2000

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 The Adjusted Discount Rate
15
------ Stage I
------ Stage I I
Adjusted Discount Rate
------ Stage III
------ Stage IV
10 ------ Stage V
------ Stage VI

First cut almost always takes place

at the start of Stage I or II.
600
500
400
300
200
100 KST
0
-100
-200
-300
-400
-500
-600
1950 1960 1970 1980 1990 2000

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 Commodity/Bond Ratio
Commodity/Bond Ratio

Peaks in Stages V and VI and troughs in Stage II

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Commodity/Bond Ratio

KST Still bearish

 Commodity/Bond ratio

Short-term KST

Long-term KST

Long-term KST
Introducing the Stock/Commodity Ratio

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Idealized Business Cycle
Stocks
Commodities

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 The Stock/Commodity Ratio

Stock/commodity Ratio

Usually bottoms in Stage I or II

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 The Stock/Commodity Ratio

Stock/commodity Ratio

Usually peaks around Stage IV

By Stage V it is usually falling sharply

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 S&P Composite *

Light highlight indicates when the Stock/Commodity Ratio is above its 12-month MA
The S&P Composite vs. the Stock/Commodity Ratio
S&P Composite

Stock/Commodity Ratio

KST of Ratio

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Tried to break out
twice but failed
5.The Role of Gold

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 Gold Price

CRB Spot Raw Industrials

Gold Momentum advanced 9-months

CRB Momentum
 Gold vs. Equities
S&P Composite

Stock/Gold Ratio
 Gold vs. Equities
Stock/Gold Ratio

Real S&P
 S&P Composite

Stock/Gold Ratio
 Stock/Gold Ratio

Short-term KST

Intermediate KST

Long-term KST
6.Industry Groups Discount their
Sectors of the Economy.

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 How the Market Leads the Sector
Homebuilders lead housing Capital goods stocks lead capital
spending

Homebuilders
Housing
Capital spending stocks
Capital spending
 Homebuilders vs. Housing Starts
Home Builders

Housing Starts

Housing Start KST

Home Builder KST
 Homebuilders vs. Housing Starts

Housing Start KST

Home Builder KST
Idealized Business Cycle
Bonds Stocks
Commodities

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Idealized Business Cycle
Bonds Stocks
Commodities

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7.The Early Leaders vs the
Lagging Sectors
 Deflation vs. Inflation Group Index

Deflation Group Index

Inflation Group Index

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Inflation/Deflation Ratio and Industrial Commodities
Inflation/Deflation Ratio

CRB Raw Industrials

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AAA Bond Yields and KST of Inflation/Deflation Ratio
AAA Corporate Bonds Yields

KST of Inflation/Deflation Ratio

Vertical lines show KST MA crossovers

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 Deflation Group Index

Short-term KST

Intermediate KST

Long-term KST
Inflation Group Index

Breakout
Short-term KST

Long-term KST

Long-term KST
Inflation/Deflation Ratio

Long-term KST

ROC (12)
 Financials vs Technology
Late 1990’s
S&P Computers RS momentum powered by
techs

2000-2002 led by
financials
S&P Financial RS momentum

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8.Outlook for Individual markets
• Global
Global Commodity/Bond Ratio
World Bond Index
 Index at 1225;MA is at 1160

Vertical lines show overbought/oversold crossovers

Not quite a sell yet

Just above the line
• US Equities
Vertical lines show start of “5”years

Years ending in “5” are bullish

??
Stock/Bond Ratio

Short-term KST

Intermediate KST

Long-term KST
Light plots show bearish periods

Close to a sell signal

S&P Composite
D
C
B
A

Line is around 1215

Short-term KST A B C D

Intermediate KST
DJIA

13-week A/D Ratio

Bearish again
Spring/Summer KST
• US Credit Markets
10-year Yield

Short-term KST

Long-term KST

Long-term KST
Too many bulls
• Commodities
Almost bullish
Still overbought
OIL

OIL in Yen

OIL in Euro
• International Stocks
Eurotop

Short-term KST

Long-term KST

Long-term KST
S&P/Nikkei
($ adjusted)

Short-term KST

Intermediate KST
 Nikkei (Inverted) H
S S

H S?
S
Japanese Government Bonds
 H S?
S
Japanese Government Bonds
Nikkei

S S
H
KST

RS Against the World Index

• Currencies
 Dollar Index

S S
Short-term KST
H

Intermediate KST

Long-term KST
Still below zero
Euro S S S

Short-term KST

Intermediate KST

Long-term KST
Swedish Kroner

S S
Short-term KST H

Intermediate KST

Long-term KST
Japanese Yen (IMM) H
S
S

Short-term KST

Intermediate KST

Long-term KST
• Precious Metals
Global Gold

Yen Gold

Euro Gold
Gold

KST
Silver

Short-term KST

KST is bearish

Long-term KST
Silver

KST

KST is bearish
The

End
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