For Tuesday, July 10, 2012, We Recommend Against Investing

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

Technical Comment:

The S&P 500 declined 0.16% on Monday with volume below the 30-day moving average but above Friday.  A decline of about 23 points (-1.8%) on Tuesday could be enough to change our forecast to an uncertain trend.

Subjective Comment:

Monday the S&P 500 was down most of the day then climbed at the end of the day to finish down almost 0.2%.  The light volume was stronger than Friday, so it could be considered a strong-volume down day, but we discount this for a combination of two reasons.  First, Friday is typically a light trading day, and last week with the holiday on Wednesday the daily volumes were lighter than normal.  Second, Monday’s volume was lighter than the 30-day average.  We conclude Monday was a trading session with nothing of note.  US public corporations are about to start announcing second quarter results, so it is likely most market participants are waiting for this flow of information before changing their investment portfolios.  We see no technical strength in the market data.  The prevailing technical trends continue to be similar to weak markets.

Comments from the European Central Bank cast doubt there will be any near-term assistance to help with the Eurozone debt crisis.  This mean continued weakness in European markets with the occasional overreaction to any news from various political and bureaucratic meetings.  The Eurozone weakness will have a greater impact on US markets now that the US money supply has stopped growing.  As the 0% US M2 growth rate persists we are becoming more bearish on the outlook for the US economy and stock markets.  We are not yet at the point of recommending a short position for the US market, but this is becoming more likely.  Continue to hold and accumulate cash.  Avoid all bonds and US stocks.  Price inflation hedges will see volatility but should be held for the long term.  Do not accumulate price inflation hedges unless you have done much more research and feel comfortable with any specific commodity.

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