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"Courage is fear holding on a minute longer." - George S. Patton

It appears that markets are ready to rally during the fall, with Germany leading the charge.

As many of my readers are aware, I focus the vast majority of my articles on analyzing relative price ratio trends. While markets *may* be efficient within averages, I have seen enough research that suggests they are not across averages. In other words, there are inter-market relationships that are exploitable. At the end of the day, if you want to beat the average, you have to choose another outperforming average.

Having said all that, take a look at the price ratio of the iShares Germany ETF (NYSEARCA:EWG) relative to the Dow Jones Industrial Average (NYSEARCA:DIA). As a reminder, a rising price ratio means the numerator/EWG is outperforming (up more/down less) the denominator/DIA. The idea is to cancel out the beta component of price to identify non beta-factor movement.

Click to enlarge

It should come as no surprise how violent of a decline Germany's markets have gone through, and how sharply they have underperformed U.S. markets as the summer crash of 2011 took hold in August. Certainly the news seems to only get worse in the eurozone, and Greece does look like a lost cause. However, it appears that the escalation of commitment by EU leaders has reached such extremes that no one is willing to let Greece leave the euro.

The main thing I want to point out here though is that there appears to be the early stages of a V-like snap back rally occurring in Germany's markets relative to the U.S. And while this is a relative move, we should consider that the panic in European equities sparked the decline in the U.S. The natural conclusion then is that any kind of an outperformance trend in Europe would happen in an upswing, pulling markets in the U.S. higher in the short-term.

All this is tentative and fragile of course, but this combined with my prior published article here in which I noted the tiredness in defensive sectors does seem to argue that a risk-on move is becoming a higher probability. It certainly takes courage to begin thinking about equities again ... which is just another reason for why markets could surprise up. Hence, I go from calling the Summer Crash of 2011, to the Fall Melt-Up.

Source: Germany, The U.S. And The Fall Melt-Up Of 2011

Additional disclosure: The author, Pension Partners, LLC, and/or its clients may hold positions in securities mentioned in this article at time of writing. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities.