For Thursday, September 13, 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 0.2% on Wednesday with volume above Tuesdays and higher than the 30 day moving average volume.  The S&P 500 would have to decline about 27 points on Thursday (-1.9%) for our forecast to change to an uncertain trend.

Subjective Comment:

Wednesday was another strong-volume up-day on the S&P 500. That makes two strong-volume up-days in a row, but still no pattern predictive of future growth. It appears market participants continue to speculate the Federal Reserve will announce a quantitative easing program tomorrow.  In the euro zone the news from Germany is a ruling from the constitutional court that allows funding of bailouts but only if it’s limited by the German Legislature. German taxpayers appear upset by this ruling, prompting Financial Minister Schaeuble to appear on television and reassure the German public that the ECB will not engage in money printing. If the Federal Reserve starts a new quantitative easing program tomorrow, it will be a few weeks before the US money supply data reflects the change in monetary policy. It is very important to carefully track the US money supply data made available every Thursday by the Fed. If the US M2 money supply growth rate accelerates into the double digits another bubble-boom becomes likely for the US economy and stock market. We recommend wealth preservation strategies for your investment portfolios. Continue to hold and accumulate cash and avoid US stock markets and all bonds. If the Fed accelerates the US M2 growth rate there will be plenty of opportunity to invest in US equities. It is our opinion it is still too soon to risk investing as the Fed might decide that monetary policy change now would be seen as too political given the pending elections in the United States.

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