For Monday, July 16, 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 1.7% on Friday with volume lighter than Thursday and below the 30-day moving average volume.  The S&P 500 would have to decline about 25 points (-1.8%) on Monday to change our automated market forecast to an uncertain trend.

Subjective Comment:

Friday’s US market advance was very large for a single day, but it was on light volume.  If volume had been strong, then the advance would be more consistent with a strong and growing market.  The light volume is more consistent with a weak market.  We interpret Friday’s advance to be a spurious up-day in an otherwise weak market, despite the large advance in the index.  Since the first of June there has been a multi-week up-trend in the S&P 500, but the daily pattern has been predominantly light volume on up-days and heavy volume on down-days.  Up-trends with this kind of daily market data are most commonly short lived and unsustainable.  Technical weakness is persisting in US markets.

The Euro and US money supplies need to be tracked to determine what might happen and how their growth rates will impact these markets and economies.  If the growth rates of the money supplies suddenly and significantly accelerate then markets could grow and economies could enter another bubble-boom.  This would delay the market decline (crash) that is coming in the US.  However, we see no indication the US money supply will experience an accelerated growth right now.  17 weeks ago the US M2 (not seasonally adjusted) money supply growth rate collapsed from an annualized 7%+ to effectively ZERO growth.  Austrian Business Cycle Theory explains how this will eventually cause a market crash.  Please see our post from 7/12/12 for additional details and our investment advice.

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