For Monday, May 21, 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 0.74% on Friday with volume lighter than Thursday but still above the 30-day moving average volume.  The S&P declined every day this past week, losing 4.3% of its value.  Our automated forecast remains in an uncertain trend as the stop-loss algorithm has been and remains triggered.  A large bounce upward could cause a reversal of the trigger and switch our forecast to growth, but this seems unlikely.

Subjective Comment:

Friday was a strong-volume day compared to the average volume, and Friday volume is usually weaker than the rest of the week.  The market was positive for part of the day and the Facebook IPO got a lot of attention, but by the end of the day the IPO closed only a few pennies up and the US markets were down.  The technical patterns remain very weak.  Investing in US equities right now is unwise.  While there is a lot of cash that could invest in the market, clearly people are not interested in participating right now.  There is just too much uncertainty with the Eurozone debt crisis and political uncertainty, a weakening economy and crashing stock market in China, and unease in the US with the recent multi-billion dollar loss by JP Morgan Chase.

We encourage you to hold cash or a risk-off position and avoid all bonds.  If you need something to do with your time, we recommend learning more about Austrian Business Cycle Theory and Austrian Economics.  This school of economic though provides the correct explanation of the business cycle.  The booms and busts that always follow are the result of fractional reserve banking practices and inflationary money printing by central banks.  While all of this is legal and considered normal because it’s been on-going for hundreds of years, it is not part of a free enterprise system.  Without the legal monopoly provided by the government the central bank could not function.  Unfortunately the school of Keynesian economics provides a wrong but popular explanation for how an economy works, and governments follow this bad advice.  Their solution is more government borrowing and spending, financed by money printing.  Until this stops, economies and stock markets will continue to boom and crash.  As investors we can understand and trade our portfolios to grow with the boom and avoid the crash.  Now is the time to avoid the crash.  The US stock markets will either move sideways or continue to decline.  The losses this past week look like a serious crash.  We’re not sure which will happen, but growth is out of the question for the near term.  For a full analysis of the current US money supply trends, please refer to our previous post.

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