For Monday, Jul 18, the market forecast is uncertain

We recommend selling your equity positions.




Technical Comment:

The up-and-down market action is building both patterns that precede growth and decline.  Neither pattern has been able to fully develop.


Subjective Comment:

Financial and political news from Europe and the US Debt Ceiling negotiations is likely causing market uncertainty.  Price inflation in China continues and has caused Chinese officials to slow the growth rate of their money supply.  This will crash the Chinese stock market soon.  While Chinese price inflation does not seem to be getting much coverage, a crash in their stock market will surely be reported by the major news outlets.  All of this is likely the cause more of the up-and-down movement of the US Market.

The Federal Reserve halted QE-2 at the end of June.  This past week the Fed Chairman in congressional testimony hinted that additional Quantitative Easing (money printing) could begin again if needed.  The $600 Billion of newly printed money over the past 8 months has had a mild impact on US price inflation, but that is about to change.  Most of the new money has been held by banks as excess reserves.  The banks are starting to loan those reserves out, causing the US Money Supply to accelerate its growth rate.  This will eventually have a simulative effect on the US Economy, commodity prices and the US Stock Markets.  In fact, it probably has already begun.  As US companies begin publishing their quarterly results, expect “good” news.  The acceleration in the money supply will also cause US Price Inflation to pick up and be much higher than it has been.

Our technical indicator does not account for price inflation nor changes in the US money supply.  When the inflation driven boom begins to take effect, our forecast model will likely change to growth as nominal stock prices begin to climb.

All inflation driven booms are not good for the economy in the long run.  They always generate bad investments.  If housing construction picks up, this would be an example of bad investments.  There is too much housing sitting empty as the economy has not yet corrected from the subprime implosion a few years ago.  However, artificially low interest rates will spur bad investments in long-term projects such as housing.  If you see housing construction, ask yourself how smart that is when so many existing houses are sitting empty.  Investing at the beginning of the coming boom and getting out before the bust is what our forecast is designed to do.  Keep checking it frequently.

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