For Monday, Sep 26, the market forecast is uncertain

We recommend selling your equity positions. Avoid money market funds as a cash alternative due to exposure to European sovereign default risk.

Technical Comment:
Friday the S&P 500 rose 0.6% on volume lower than Thursday but higher than the 30-day moving average. The week was down 6.5%, which is a large weekly decline for the market. Our forecast remains uncertain. On Monday if the S&P 500 increases by about 8 points, our forecast would likely return to growth. The nature of the stop-loss algorithm in our forecasting process is such that market volatility can cause frequent shifts between growth and uncertain. Currently there is a developing pattern that typically precedes further downward movement in the market.

Subjective Comment:
The sovereign debt problems in Europe are causing a lot of headlines and drama. The tight monetary policy by the European Central Bank after a period of Euro expansion has tipped the business cycle downward in the Eurozone and further market declines and economic contraction are to be expected. Greece will eventually default on its debt, causing problems for European banks. When that happens, other countries could default too and trigger further market declines. The contagion will impact US markets, but not as badly as it will be for Europe. China’s market and economy are experiencing the same situation and will also decline.

The US money supply continues to grow rapidly via the Federal Reserve’s policy of near-zero interest rates combined with the money multiplier as banks engage in fractional reserve lending. This rapid money growth will eventually cause high price inflation and a rise in US markets. It’s difficult to guess when the expanding Dollar supply will overcome the contagion drag from Europe. The technical signals from the market this week have begun to suggest it could be longer than we had previously thought.

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