For Wednesday December 19, 2012, We Recommend Against Investing

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Technical Comment:

The S&P 500 advanced 1.2% on Tuesday, the same percentage advance as Monday.  Tuesday’s volume was above Monday’s and higher than the 30 day moving average.  This resulted in two consecutive strong-volume up-days, each above the 30 day moving average and each greater than a full percent of index advancement.  To change our automated forecast to an uncertain trend on Wednesday the S&P 500 would have to decline about 35 points (-2.4%).  Our pattern recognition software has not identified any predictive patterns in the daily market data, but the rapid accumulation of strong-volume up-days remains notable and consistent with a strengthening market.

Subjective Comment:

There remains speculation about the political “fiscal cliff” and its impact on the stock market.  We have been speculating the political uncertainty could contribute to market volatility through December.  While still possible, it would seem less likely given the strong-volume up-days last week and again these past two days.  Yesterday we identified housing as an example of where economic activity picks up first when a bubble-boom is created by an expanding money supply.  Today we noted this post where Bob Toll, a very credible source, is predicting strong growth in the housing market in the future.  The US M2 money supply is growing at an accelerated rate over the past 3 months, and all the classic signs of a bubble-boom, as predicted by Austrian Business Cycle Theory, are showing themselves.  If market action like we’ve seen recently persists, we might change our subjective recommendation to “invest for growth” before the end of the year.

Our advice is to avoid all bonds as they will eventually fall in value as price inflation gets worse, which it eventually will from the Fed’s money printing.  Determine how much of your portfolio you want to invest in the stock market and move those funds to your brokerage accounts.  Aggressive investors should begin accumulating positions now in leveraged index funds that grow with US markets.  More conservative investors should prepare but wait a little while longer.  With the recent market action we’re curious to see if our software detects a growth pattern.  If that happens, we’ll be recommending investing for sure.  If it doesn’t happen, we are still highly likely to change our subjective recommendation in early January or sooner.

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