For Tuesday, November 20, 2012, We Recommend Against Investing

Technical Comment:

The S&P 500 advance 2% on Monday with volume below last Friday and lighter than the 30 day moving average volume.  The very large increase of the S&P 500 index caused a reversal of our stop loss trigger and returned our automatic forecast to a growth trend.  Should the S&P 500 decline about 19 points on Tuesday (-1.4%), our forecast would likely change again back to an uncertain trend.

Subjective Comment:

With the acceleration of the US M2 money supply growth we are not surprised to see a large upward movement in the US stock markets.  Still, a one day jump of 2% on the S&P 500 is impressive.  It would have been more noteworthy had it occurred on strong volume.  Monday saw light volume, and that is reason to be weary of the movement in US markets.  Jumping back in now is not advisable.  We still think US markets will be highly volatile through the remainder of 2012 with overall direction flat or down.

Another reason to be cautious about investing on Tuesday comes from Moody’s downgrade of French sovereign debt from triple A after US markets closed on Monday.  This will likely spook investors and markets could decline on Tuesday, or could at least open below Monday’s close.  Continue to avoid all bonds and stay out of stock market index funds for now.  Price inflation will continue to be high and will probably go higher in 2013, so price inflation hedges are a good idea if you able to hold for a very long time.

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