For Tuesday, November 27, 2012, We Recommend Against Investing

Technical Comment:

The S&P 500 declined 0.2% on Monday with volume above Friday but below the 30 day moving average.  If the S&P 500 drops about 32 points on Tuesday (-2.3%) our automated forecast could change to an uncertain trend based on the stop loss algorithm we use.

Subjective Comment:

US markets experienced very low volume again on Monday.  Our pattern detection algorithm classified Monday as a strong-volume down-day because Monday’s volume was higher than Friday, but remember that Friday’s trading session was shortened because of the holiday.  This is why our pattern detection software looks for patterns to develop over multiple days.  Reliance on any single day’s market action is foolish.  Our automated forecast indicates growth only because of the large advance in the S&P 500 index that occurred last week.  The daily market data has not produced any pattern predictive of growth.

When we consider the growth of US M2 money supply and various economic indicators, we speculate the US economy and stock market could boom in early 2013.  We doubt this boom will begin in December as there will be many market participants selling based on year-end tax strategies, especially with the uncertainty regarding new tax rates as politicians in Washington D.C. debate what they want to do.  The accelerating growth in the money supply coupled with the previous growth over the past several years has place the US in a very dangerous position regarding price inflation.  We expect prices will start accelerating higher in the near future, probably in the first half of 2013.  When this happens, bond prices will fall as investors will demand higher yields to compensate for price inflation.  This is why we recommend against all bonds.  It is also why we encourage our readers to invest a portion of their portfolio in hedges against price inflation.  Regarding US equities, we think there will be an opportunity to invest in early 2013.  Until then it is best to be ready but avoid investing in US markets for now.

Our regular readers will notice the repetitive nature of our daily posts.  We do this deliberately so anyone who has missed a few days can catch up quickly, and so new readers will not have to spend a lot of time catching up with older posts.  We invite all readers to let us know what you think.  Let us know what you like and what, if anything you would like to see less of.  We are considering changes as the new year approaches and we always welcome feedback from all of you.

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