For Monday, May 7, 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 declined 1.6% on Friday with volume below Thursday but above the 30-day moving average volume.  The drop was sufficient to trigger our stop-loss algorithm and change our forecast to an uncertain trend.  If the S&P 500 advances about 5 points on Monday our forecast could flip back to growth.

Subjective Comment:

The large decline in the S&P 500 index on Friday was with strong volume.  Since volume was a little below Friday the decline is not seen by our automated system as significant in forming a bearish pattern.  However, the decline was strong enough to destroy the formation of the bullish pattern that had started the prior week with a few strong-volume up-days.  There are currently no predictive patterns under formation, so the most recent 50% chance of growth or decline remains in place.

According to the news headlines the US unemployment data was the likely cause for the market decline on Friday.  It surely had a psychological effect on some or even many traders.  Our opinion is based on our analysis of the US money supply as outlined in detail yesterday.  We have also been advising against investing in US equities because of the details within our automated technical analysis and forecast.  The recent “growth trend” of our forecast was from the stop-loss algorithm which is subject to false signals when the market moves sideways (like now) or has high levels of volatility.  We hope our commentary has provided useful information in developing your investing strategy.  We remain very cautious and advise against investing in US equities right now.  You should sell or establish a risk-off position via hedging if you’re familiar with such techniques.  We also advise investing in hedges against price inflation with the exception of TIPS bonds.  All bonds should be avoided.  It is a common strategy to invest in bonds when the market goes down.  This is a bad strategy right now.  So much money has been printed by the Federal Reserve that price inflation is going to continue and will probably get worse soon.  We’re only unsure of the timing of this outcome.  That price inflation is coming we are certain.  This will force bond yields up causing bond prices to drop.  Ergo, avoid bonds.  They will not preserve your capital.

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