For Thursday February 14, 2013, We Recommend Investing in US Markets

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Technical Comment:

The S&P 500 advanced 0.06% on volume below Tuesday and lighter than the 30 day moving average volume.  US markets were mixed Tuesday with the Dow down, the Nasdaq up and the S&P 500 essentially unchanged.  The low volumes in the US markets have accompanied small changes in the indices recently.  The daily patterns have shifted away from those typical of a bull market to more of an uncertain pattern.  If the S&P 500 declines about 4 points on Thursday (-0.3%) our automated forecast would likely change to an uncertain trend based on our stop loss algorithm.

Subjective Comment:

It is common during a bull market for the up-trend to pause as some participants sell to lock-in their gains.  That could be what is happening, but the low volumes suggest there is little buying by large institutional investors.  We think most participants could be waiting to see what is developing before investing further.  The G7 summit, the State of the Union speech, the Eurozone debt crisis or any other news headline could be causing concern.  We are unconcerned about those factors as they will only have a temporary impact on US markets.  The growth rate of the US money supply is what is causing the bubble-boom in US markets, the US economy, and it is what will drive price inflation higher later this year.  We have noted the recent trend reversal in the US M2 money supply.  Even though there has been a recent decline in M2, there has been enough new money and credit created to support the stock market bubble we’re currently experiencing.  US banks are still lending at a faster rate and we think M2 data will start to show growth again.  If we’re wrong and M2 continues to shrink, then the bubble-boom will be in jeopardy.  For now we still recommend holding your equity positions and price inflation hedges as these appear to be very good investments right now.  Avoid all bonds and accumulate cash until the uncertainty in M2 money supply growth resolves itself.

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