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Technical Analysis: Power Tools for Active Investors by Gerald Appel

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Measuring the Market Mood with the Intermediate Monetary Filter

The relationship between the direction of stock price movement and trends in interest rates has been long recognized. As a general rule, stocks tend to rise in price during periods that interest rates decline and to make relatively little progress, on balance, during periods that interest rates advance. Chart 2.2 illustrates these relationships.

Chart 2.2. Major Trends in the Stock Market Versus Major Trends in Interest Rates

A number of bear markets have come to an end as interest rates peaked—for example, in 1970, 1974, 1982, and 1990, but not the 2000–2002 bear market. You can see the correlations between secular long-term trends in the stock market and secular long-term trends ...

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