For Friday December 7, 2012, We Recommend Against Investing

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Technical Comment:

The S&P 500 advanced 0.33% on volume below Wednesday and lighter than the 30 day moving average.  If the S&P 500 declines about 12 points (-0.9%) on Friday the stop loss settings could change our automated forecast to an uncertain trend.

Subjective Comment:

While Wednesday was a strong-volume up-day, Thursday was a weak-volume up-day.  We still think US markets are likely to start a bullish trend in the near future, but not until January at the soonest.  The daily market data we watch for are multiple strong-volume up-days, and so far that has not happened.  The Federal Reserve published the US M2 money supply statistics and there is no mathematical change in the money supply growth week based on the most recent data.  However, for the past half year there is a clear 4-week pattern in the M2 (not seasonally adjusted) data where 3 high values are followed by a dip, and this week’s data showed the dip.  If this pattern persists, next week should show a strong acceleration in the growth rate, likely enough to cause an up-tick in the current 8.5% annualized rate.  Given the economic indications of growth, this is consistent with Austrian Business Cycle Theory.  The Fed is causing another bubble-boom in the US economy and the stock market will advance as well.  Like all bubbles it will eventually pop, but there will be an opportunity to invest and take advantage of the manipulated growth that’s coming.  The size and duration of the bubble will depend on the Fed’s monetary policy.  We think the political uncertainty around US tax rates will prevent the US market from picking up until at least January.  Until then continue to be ready to invest.  Also, avoid all bonds and investments in the Eurozone and Chinese markets.  Price inflation hedges are also good long-term investments as we expect prices to go higher as a result of the growing money supply.