For Wednesday, September 5, 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 0.1% on Tuesday with volume above Friday but still below the 30-day moving average volume.  If the S&P 500 advances about 1 point (0.1%) on Wednesday, our automated forecast could return to a growth trend.

Subjective Comment:

Our pattern recognition algorithms classified Tuesday as a strong-volume down-day.  While interesting, we have not seen the formation of a predictive pattern.  US markets continue a slight decline and we see no reason in our technical analysis to justify an optimistic outlook that the markets or the economy could pick up in the near future.  News out of Europe suggests the European Central Bank is nearing the point where they would purchase Eurozone sovereign debt with maturities up to 3 years.  If the ECB takes strong action to prop up the Eurozone bond markets it will cause price inflation in Europe and also cause Eurozone stock markets to advance.  This would likely have a spillover effect on US markets.  US markets will not see a sustained lift from any Eurozone action unless US M2 money supply growth accelerates.  Continue to hold and accumulate cash as a wealth preservation strategy and avoid US equities and all bonds.

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