For Wednesday, August 1, 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 0.43% on Tuesday with volume above Monday and above the 30-day moving average.  An S&P 500 decline of about 45 points (-3.3%) on Wednesday would likely be enough to change our automated forecast to an uncertain trend.

Subjective Comment:

Tuesday was a strong-volume down-day.  The past few days the S&P 500 daily market data showed possible signs of a growing market with up-days on strong volume and down-days on light volume.  Tuesday reverses this brief trend and reestablished the prevailing patterns of market weakness.  Based on our technical analysis, there is no reason to risk investing in US markets right now.

The Federal Reserve will release its scheduled FOMC update Wednesday afternoon and the European Central Bank will announce its updated monetary policy on Thursday.  These announcements could be seen as “accommodative” or “tight” regarding the money supply with markets either advancing or declining respectively.  It is anyone’s guess which way the announcements and policy decisions might go.  Regardless, what matters is the money supply growth rates that result from actions.  Central Banks are notorious for statements that attempt to encourage the market to grow.  While we will carefully watch for announcements regarding monetary policy changes, all other commentary we ignore.  We advise our readers to do the same and follow the money supply numbers with subjective interpretation via Austrian Business Cycle Theory.

Continue to hold and accumulate cash.  Avoid all bonds, and avoid the risk of US stock markets until at least after Thursday when the Fed and ECB monetary policy announcements and US money supply update will be available.  We continue to recommend against investing despite our automated forecast.  We are very concerned about the spill-over effects from the Eurozone and China markets combined with the large slowdown in the US M2 money supply growth.  These are the reasons for our subjective disagreement with our automated analytical process.

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