For Tuesday January 29, 2013, We Recommend Investing in US Markets

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Technical Comment:

The S&P 500 declined 0.18% on Monday with volume below Friday and below the 30 day moving average volume.  With volume being below average and below Friday, Monday was not a strong-volume down-day.  Low-volume down-days are a common occurrence during a bull market up-trend, and by all accounts Monday’s minor decline is not a reason to leave the market.  If the S&P 500 declines about a half point on Tuesday our automated forecast could change to an uncertain trend from our stop loss algorithm.

Subjective Comment:

If Tuesday sees the S&P 500 decline a small amount and our automated forecast changes, we will subjectively recommend to our readers to stay in the market.  It takes several strong-volume down-days for our pattern recognition software to identify red flags during a bull market.  A small decline on Tuesday will not be enough to create such a pattern and the stop-loss trigger would be a false indicator.

The Federal Reserve’s Open Market Committee meets Tuesday and Wednesday this week with a policy announcement on Wednesday.  Fed watchers expect no change to the current Fed policies, but there is always the possibility.  Speculation could create some market fluctuations.  Lots of things can and will cause the market to bounce about, but it is the accelerated growth rate of US M2 money supply growth that is fueling another bubble-boom in the US economy and stock market.

Austrian Business Cycle Theory (ABCT) explains that a bubble-boom begins in the sectors of the economy most sensitive to interest rates.  This means economic activity where long-term financing is needed is going to be the first place a bubble-boom is felt.  Examples are housing and construction, along with heavy equipment and machines used to produce other goods.  Today Durable Orders was reported at 4.6% where expectations were around 1.6% to 2.5%, and the prior reading of this economic indicator was 0.7% (revised).  The increase in durable orders is consistent with the pattern predicted by ABCT as a result of the aggressive money printing.

The creation of new money (Quantitative Easing) and credit (accelerated bank lending) is driving the bubble-boom, and it will cause price inflation to accelerate too.  Avoid all bonds.  If you own any bonds, sell them!  We recommend investing in price inflation hedges and in leveraged index funds that grow with the US stock markets.  The US Dollar will lose purchasing power as a result of inflation, so holding large amounts of cash is not a good idea.  An emergency reserve of cash is always a wise contingency plan, but beyond what you need for emergencies you should be investing.

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