For Tuesday, August 14, 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 0.13% on Monday with volume below Friday and lighter than the 30-day moving average volume.  Should the S&P 500 decline another 21 points (-1.5%) on Tuesday our forecast is likely to change to an uncertain trend.

Subjective Comment:

Volume is typically light on a Friday at the end of the week, and that was the case this past Friday.  For volume the following Monday to be lighter than the preceding Friday is unusual.  This is only mildly interesting and shows a persistent lack of interest by many to participate in the US stock market.  Regarding pattern formation the volume and market action on Monday was unremarkable.

We continue to advise caution regarding investments in US stocks given the slowed growth of the US money supply.  Our comments in the prior two posts provide details about our concern for future market growth.  We are also concerned about price inflation from all of the prior money printing in the US.  The drought in the US will be adding to the increase in food prices in the near future and will likely be blamed for all of the price inflation worldwide.  Scarce supply does cause prices to go up, and so does money printing.  If the Eurozone debt crisis and the crashing economy in China cause international money printing, price inflation will become a bigger issue.  (Price inflation of food is already a big problem in China.)  If the Federal Reserve resumes a Quantitative Easing program, or should US Banks resume aggressive lending, then price inflation in the US will accelerate.  It is likely money printing will be the response by the Fed if US markets crash.  For these reasons we encourage you to do additional research to find price inflation investments best suited to your circumstances.  We also recommend keeping a portion of your portfolio in cash should a market crash develop.  This will protect you from losses, and it will give you the opportunity to short the US market during the crash if you are a more aggressive investor.

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