For Thursday, September 27, 2012, We Recommend Against Investing

Market conditions are changing.  Please read our entire post to fully understand our current recommendation and the potential for changes in the near future.

Technical Comment:

The S&P 500 declined 0.57% on Wednesday with volume below Tuesday but above the 30 day moving average volume.  The decline on Wednesday was sufficient to trigger the stop-loss algorithm in our automated forecast, changing it to an uncertain trend.  The trigger was just barely tripped, so an increase of about 2 point increase of the S&P 500 on Thursday (+0.1%) would likely be enough to return the forecast to a growth trend.

Subjective Comment:

Tuesday’s decline was on strong volume, but not strong enough for our pattern recognition algorithms to register a strong-volume down-day.  Even so, the daily market data from the S&P 500 is more consistent with a weakening market instead of a market that is about to grow.  This continues to suggest market participants are waiting to see what will happen with QE3 and other events, such as these 4 issues identified in Foreign Policy magazine (hat tip EconomicPolicyJournal):

One is that the Eurozone crisis gets worse and becomes a train wreck. The second one is that the fiscal cliff becomes severe in the United States and you have a contraction.

The third one is that you might have a hard landing in China, and the fourth one is the risk of conflict in the Middle East.

We have been recommending investments in hedges that protect against price inflation.  We continue to suggest this to our readers and recommend this video from Bob Murphy for additional details about why price inflation is coming.  In addition to price inflation hedges, we must continue to advise against investing in the US stock market right now.  Not only has our automated forecast changed on the stop-loss trigger, but it remains unclear if the QE3 money printing will accelerate the US M2 money supply growth enough to fuel a continuation of the bubble-boom which had been slowing.  The more we watch the S&P 500 continue to move down on strong volume, the more we think US banks will simply let their excess reserves grow.  Remember, US banks are earning interest on those excess reserves, so they could be quite content to let the additional $40 Billion per month from QE3 sit in excess reserves.  Time will tell.

One Response to For Thursday, September 27, 2012, We Recommend Against Investing

  1. Trading prior to the opening on Thursday indicates an up-day for the S&P 500 is likely. The stop-loss trigger is so close to its setpoint that an up-day will likely change our automatic forecast back to a growth trend.