For Thursday, April 5, 2012, the market forecast is uncertain

Our forecast changed to an uncertain trend for US stock markets.  If you choose to liquidate and hold cash, please avoid money market funds as they have exposure to European sovereign default risk.

Technical Comment:

The S&P 500 declined just over 1% on Wednesday with volume above Tuesday and greater than the 30-day moving average volume.  The decline was sufficient to trigger the stop-loss algorithm of our automated process and turn our forecast to an uncertain trend.  If the S&P 500 advances about 0.3% on Thursday our forecast could return to a growth trend.

Subjective Comment:

Wednesday was the second consecutive strong-volume down-day for the S&P 500, combined with a large 1% decline in the index.  With two days in a row of strong volume declines we now have the beginning of a pattern that could indicate additional market declines.  This weakness has not fully formed a pattern of any predictive value, but it is noteworthy.  Our forecast changed to an uncertain trend based on the safety stop-loss algorithm.  The stop-loss system can produce false signals from time to time, but it should be taken more seriously given that it happened concurrently with two consecutive strong-volume down-days.  Cautious investors should consider liquidating equity positions.  More aggressive investors can consider holding equity positions through tomorrow but not adding until we see what the market will do on Thursday.  This suggestion is on the possibility the stop-loss was a false-positive trigger.

As we have written many times, there is weakness in China and in the Eurozone.  Spanish sovereign debt had a weak auction, probably causing some jitters about Europe again.  Spain and Italy are the countries of most concern in the Eurozone.  China’s market also continued its decline with weaker GDP.  There were also threats by Chinese Premier Wen Jiabao towards Chinese banks.  China is experiencing a crash which will get worse, hence the scapegoating of banks.  The weakness in other countries and the FOMC minutes published yesterday are likely the cause of the current decline.  As we discussed yesterday, the people getting nervous about these external factors do not fully understand Austrian Business Cycle Theory.  What matters is the growth rate of the US money supply.  Tomorrow will be the next weekly update on money supply statistics and we will provide analysis and commentary on that data.

We still advise researching and investing in hedges against price inflation and selling all bond holdings.  Cautious investors should consider reduction of US equities but remember our forecast could easily return to growth if the market advances on Thursday.  Aggressive investors can hold equity positions in case today’s forecast change was a false-positive.  Be sure to visit us again tomorrow to see if the weakening pattern continues to develop or not and to get an update on the money supply growth, and please consider recommending us to your friends and liking us on Facebook.

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