For Thursday January 31, 2013, We Recommend Investing in US Markets

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Technical Comment:

The S&P 500 declined 0.4% on Wednesday with volume below Tuesday but above the 30-day moving average.  Although Wednesday’s volume was above average our pattern recognition software considers Wednesday to have been a light-volume day because it was below Tuesday’s volume, and because most of the prior two weeks the daily volume has been above average.  The current 30-day moving average volume is still influenced from data at the beginning of the month, and it is clear volume is picking up.  The up-trend in daily volume with an increasing index is another pattern typical of a growing market.  Our stop-loss algorithm executed a subroutine intended to prevent false signals.  This adjusted the trigger point down and resulted in no change to our automated forecast.  Should the S&P 500 decline about 3 or 4 points on Thursday (-0.2%) it is likely our stop-loss trigger will switch our forecast to an uncertain trend.

Subjective Comment:

There are a couple of reasons the US market might have declined on Wednesday.  One would be the statement from the Federal Reserve’s Open Market Committee, but we doubt the monetary policy statement had much impact at all.  The policy did not change and pointed out the market reaction right after the announcement was very mild.  Another possible news item impacting market participants was the announcement of 4th quarter GDP for the US.  The initial estimate of 4th quarter GDP was a decline of 0.1% compared to a revised 3rd quarter GDP of 3.1%.  This decline might cause some people to think the US economy and markets might not continue the up-trend that has been persistent during the entire month of January.  For starters, GDP is an aggregated number based on assumptions found in Keynesian economics.  In other words it should be ignored.  Additionally, there is an excellent blog post at today that Q3 GDP might have been inflated by accelerated government spending that normally would have occurred in the 4th quarter.  Regardless of the motivation suggested, it appears federal government spending did shift from the 4th to the 3rd quarter, and this indeed would have caused 3rd quarter GDP to be higher and 4th quarter GDP to lower.  This is another reason to ignore GDP.  Still, there are lots of market participants who probably reacted to the report.

We think the dip in prices on Wednesday should be viewed as an opportunity to invest in US markets.  Our advice remains unchanged:

  • Avoid all bonds – sell any bonds you have
  • Invest in leveraged index funds that grow with US markets
  • Consider holding price inflation hedges you already own – if you don’t own any, we recommend researching options that are best for your circumstances and acquiring some

The accelerating growth of the US money supply is driving the bubble-boom.  We expect it to last for a while before it pops.  Keep track of the money supply and watch our blog for indications of when the crash might be coming, but for now, invest!  Please share our blog with your family and friends.

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