For Tuesday, June 5, 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 index was down most of Monday but rallied to close up 0.14 points, or 0.01%.  Volume was below Friday’s volume but above the 30-day moving average volume.  If the S&P 500 were to advance about 15 points on Tuesday our forecast might return to a growth trend.

Subjective Comment:

The weak daily data continues in the market patterns.  Monday was barely an up-day, but it was on lighter volume than Friday.  This is a continuation of weak-volume up-days combined with strong-volume down-days.  There is no evidence of the market making any kind of turn to growth.  Sideways action or continued declines are what our technical forecasting process is predicting.

We will not know until Thursday this week if there has been any change in the US M2 Money Supply, but we do know the past 5 weeks have shown a clear breakdown in the growth of the money supply.  After almost 10 months of constant 7%-ish annualized growth, the slowing in the growth will cause the US economy and markets to crash.  The “crash” might be a stagnation of growth or a decline, and we’re not sure if the decline will be gradual or quick.  What we do know is enough to recommend strongly against owning any positions in the US market.  Move to a cash or risk-off position.  Price inflation is still going to happen, just not as fast.  Hold any inflation hedges you own but consider accumulating cash.  Avoid all bonds as these historic low interest rates will start going higher, resulting in falling bond prices.

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