For Tuesday February 19, 2013, We Recommend Investing in US Markets

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Technical Comment:

The S&P 500 declined 0.1% on Friday with volume above Thursday and higher than the 30 day moving average.  Although the S&P 500 index was down a slight 0.1%, Friday still qualified as a strong-volume down-day.  There have only been 3 such days in the past 3 weeks, but it is still interesting to note the appearance of this type of market data.  This is not a fully formed pattern of predictive value, but it must be watched closely to see if it continues.  If the S&P were to decline about 5 points on Tuesday our automated forecast would likely change to an uncertain trend based on the settings of our stop loss algorithm.  US stock markets are closed on Monday for the Presidents Day holiday.

Subjective Comment:

The daily market data for the past week has shown signs of weakness.  When we combine this with our recent observations of the US M2 money supply we are a little concerned.  We see reasons to think US M2 growth could return to where it has been for the past 4 months, which would result in a continuing bull market boom in the US.  We also must acknowledge the fact that US M2 has shrunk recently and dramatically.  If US M2 continues its decline, we will likely become bearish in our outlook and make investment recommendations accordingly.  For now we advise our readers to hold their investments in US equities and their price inflation hedges.  We suggest accumulating cash and holding off on additional investments in US equities.  Continuing to invest in price inflation hedges is probably a good strategy if you are able to hold those investments for a long time.  It still makes sense to avoid all bonds as they are eventually going to decline in value, regardless of what the money supply growth rate does.

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