For Tuesday, September 11, 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 0.6% on Monday with volume below Friday and just above the 30-day moving average volume.  If the S&P declines about 26 points on Tuesday (-1.8%) our forecast could change to an uncertain trend based on the stop-loss algorithm within our automated analysis.

Subjective Comment:

There is still an absence of clear technical indicators regarding the future direction of US equity markets.  Volume remains light by historical standards and it is not clear what direction stocks will go.  The major events this week are a pending ruling from a German court regarding details of the various Eurozone bailouts and the Federal Reserve’s scheduled FOMC monetary policy update on Thursday.  These announcements could surprise market participants and result in abrupt changes in the short term direction of Eurozone and US markets.  Ultimately the factor that will drive US markets in the near term is the growth rate of the US M2 money supply.  US M2 is growing at a rate that will not stimulate a bubble-boom in the US economy nor US stock markets.  The European Central Bank monetary policy will likely not provide adequate monetary stimulus to the Eurozone either.  It is important to remember the ECB and the Fed could change their decisions and implement policies that accelerate money supply growth.  Central Banker announcements must never be used as an investment decision.  Instead the money supply growth rates should be interpreted using Austrian Business Cycle Theory to gage what markets will do.  Based on ABCT and current money supply growth rates, we see stagnation and possible market declines unless accelerated growth occurs.  Continue to avoid bond and equity investments.  Hold and accumulate cash to preserve your wealth.  We are unlikely to make changes to our investment recommendations until at least this Thursday when updated US M2 data is available as well as the announcements previously mentioned.

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