For Thursday, May 17, 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 0.44% on Wednesday with volume higher than Tuesday and above the 30-day moving average volume.  This makes 6 strong-volume down-days in the past 10 trading sessions and two such days in a row.  This was sufficient enough to again create a predictive pattern that forecasts a 50% chance of growth or decline.  In the past 6 weeks this is the second time this 50/50 Growth/Decline pattern has completely formed.  Our automated process continues to use the stop-loss algorithm in these circumstances, so a large increase of the S&P 500 on Thursday could return our forecast to growth.

Subjective Comment:

The accumulation of 6 strong-volume down-days in the last 2 weeks is a major sign of market weakness.  Now that the 50/50 pattern has been fully formed twice, we think it’s more likely the market declines than grows from here.  Supporting this subjective interpretation is the 9+ month’s steady growth of the US money supply that appears to be slowing.  Divest your US equity positions or take a risk-off position.  Avoid US bonds and be prepared for on-going mild price inflation in the near term.  If the Eurozone debt crisis gets worse there could be additional downside reaction by panicked market participants in the US.  The Eurozone will get worse, it’s just a matter of when, and that’s up to politicians and bureaucrats, and possibly the citizens of Greece.  The US Federal Reserve would most likely step in to support US banks and markets when things get worse in Europe, but that would happen after US markets decline significantly.  Our next good data point will be tomorrow’s publication of the weekly US money supply.

Comments are closed.