For Thursday, July 5, 2012, We Recommend Against Investing

We recommend selling your equity positions or hedging for a risk-neutral position.

Technical Comment:

The S&P 500 advanced 0.6% on volume below Monday and lighter than the 30-day moving average volume.  The S&P 500 would have to decline about 53 points on Thursday (-3.9%) to cause our forecast to change to an uncertain trend.  US markets are closed Wednesday in observance of Independence Day, so the next trading session will be Thursday.  Consequently our next update will occur late Thursday evening.

Subjective Comment:

In our post yesterday we commented about the unusually light volume for the S&P 500 on Monday.  It turns out Standard and Poors published erroneous volume data that has been revised.  We are quite unsettled by this data revision as it is highly unusual for S&P to do this.  The market index value did not change; only the volume did.  With the revised volume Monday was still a light-volume up-day, and so was Tuesday.  The light volume for Monday and Tuesday is typical leading into the holiday and reflects the shortened trading session on Tuesday.  Regardless, advancing markets on light volume is typical of weak markets.  Our technical analysis shows no sign of market strength despite the recent advance over the last week and a half.

Thursday the European Central Bank is to announce its decisions from its regular monetary policy meeting.  There are wide expectations of a 0.25% rate cut.  The Eurozone summit last week produced nothing of consequence, so our best guess why European markets are advancing is in anticipation of ECB easing of their monetary policy (aka money printing at a faster rate).  Since this rate cut is widely expected, if that’s all the ECB does then the market might not have much of a reaction.  If the ECB is more accommodative, markets will advance.  If the ECB takes a tighter stance, markets will decline.  Whatever happens in European markets on Thursday will likely spill over to US markets.  Any positive lift from European spillover would be short lived since the US money supply is no longer growing.

Continue to hold and accumulate cash while avoiding US equities and all bonds.  Hold your price inflation hedges but do not add to those positions.  Enjoy your holiday!

One Response to For Thursday, July 5, 2012, We Recommend Against Investing

  1. Richard Cure says:

    Troy.
    The morning of the Iowa caucus I turned on the radio to get the news while on my way to do chores. The News was that the economy had turned around over night and that the stock markets of the world had gone up 2-3% all around the world. All other financials were up also. What a lie. People are so gullible. Just to see to it that Ron Paul would not do well since the #1 issue was the economy. What did it cost to throw these economies? The losses reported by Morgan Chase bank was in the billions. Were those losses the losses used to throw the economies of the world? If those were the immediate losses what gains were made because they knew which way the economy was going to go?

    Richard Cure