For Monday, August 27, 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 0.65% (9 points) on Friday with volume below Thursday and lighter than the 30-day moving average.  The advance was just enough to reverse the stop-loss trigger and return our forecast to a growth trend.  On Monday a decline of just over 1 point on the S&P 500 would likely be enough to trigger the stop-loss setting again and change the forecast back to an uncertain trend.

Subjective Comment:

Volume on the S&P 500 remains very low over the past two weeks.  When volume is low the market can bounce around.  Our stop-loss trigger point is now very close to the S&P 500 index, so up-and-down movement day-to-day is likely to flip our forecast back and forth between growth and an uncertain trend.  The persistent weak volume might be setting up the formation of a pattern predictive of a downward trend, but as of now there are no predictive technical patterns in the daily S&P 500 data.

The story for the US economy and stock market will be told by the US M2 money supply data.  With the annualized growth rate back at the 7% level the decline we’ve been warning about has likely been delayed a bit, but how much longer this vapor-light-volume rally can continue is unclear.  We still expect no growth of significance from here.  Our advice is to continue to hold cash as a wealth preservation strategy.  Investigate price inflation hedges as an investment alternative.  We’re serious about doing your homework if you want to invest in price inflation hedges.  Commodities are frequently seen as a good option, but you should not just pick any commodity at random.  Recently Marc Faber presented a good analysis suggestion Iron Ore has been in a bubble that is about to pop.  Do your homework.

Keep in mind the European Central Bank may begin accelerated Euro money printing.  If this occurs, Eurozone markets will go up and pull the US market up with spill-over effects.

Editor’s Note:

Our publishing staff will be traveling next week, August 27 – 31.  We apologize in advance for the delay this will cause in producing our daily posts.  The posts will be provided every day, but they are likely to go up during the early morning hours and will be available before the US stock markets open.

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