For Tuesday, April 24, 2012, the market forecast is uncertain

Our forecast for US stock markets is an uncertain trend.  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 dropped 0.8% on Monday with volume below Friday and lighter than the 30-day moving average volume.  The drop was sufficient to trigger our stop-loss algorithm causing our forecast to switch to an uncertain trend.  The stop-loss trigger could reverse on Tuesday if the S&P advances about 5 points (+0.3%) or more.

Subjective Comment:

Last week our automated forecast switched to a growth trend on Tuesday, but in our commentary we warned that the S&P 500 growth was on light volume and the declines were on strong volume.  We have been advising against investing for both technical reasons and for the observations we’ve noted in the US money supply growth rates.  Monday’s decline was on lighter volume, but in light of all the negative technical details over the past two weeks we see no mitigating relevance to the light volume.  Financial news from Europe shows the Eurozone debt crisis has not been solved in any way.  There is simply too much debt in Europe and the only real solution is bankruptcy as demonstrated by Iceland.  The LTRO loans from the European Central Bank are simply an attempt to use liquidity to attach a solvency problem.  Being unable to pay all your debts (bankrupt) is not fixed with short term cash flow assistance.  The financial pain continues to have political impacts as the Dutch government resigned (collapsed) after weekend debates on austerity measures failed to reach any agreements.  Spanish 10-year bonds also moved above a yield of 6%.

Tuesday and Wednesday this week, April 24-25, the Federal Reserve’s FOMC will have its regular meeting to decide on monetary policy.  Jon Hilsenrath published an article in Monday’s Wall Street Journal about the upcoming FOMC meeting.  Mr. Hilsenrath frequently writes about the Fed for the WSJ, so much that some speculate he has reliable sources on the FOMC who provide him information.  While this may or may not be the case, when he predicts what the Fed will do he is often correct.  His article on Monday says the Fed will make no changes to monetary policy.  We shall learn if he is right on Wednesday, April 25th when the FOMC announces its monetary policy decisions.  The important thing about every central bank is not what they say but what they do to control the money supply.  Continue to track the growth rates of the money supply and apply the economic principles of the Austrian Business Cycle Theory at the best technique for understanding what will happen to the economy and stock market.

We strongly advise a risk-off position for your portfolio regarding US equities.  Do not invest in US markets right now.  The money supply growth that has already occurred is why price inflation has been getting worse.  We expect price inflation to continue, which will eventually cause interest rates to rise once lenders realize they have to lend at a rate higher than price inflation.  This will cause bond prices to fall, so sell all your bond holdings, including TIPS bonds.  Consider hedging strategies to protect your portfolio against price inflation.  Our forecasting stop-loss algorithm is susceptible to frequent changes when the market bounces up and down with a sideways or down-trend.  If our automated forecast changes we will be sure to let you know if it is from a predictive pattern or our stop-loss trigger which can be confused at market turning points.

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