For Thursday February 28, 2013, We Recommend Against Investing

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Technical Comment:

The S&P 500 advanced 1.3% on Wednesday with volume below Tuesday and lighter than the 30 day moving average volume.  This marks another light-volume up-day.  While the advance in the index was strong, the light volume is troubling for the bull market.  The daily market data continues to advance on light volume and decline on heavy volume.  While this pattern persists it is unwise to think the market index will continue to advance.  It is much more likely US markets will move sideways or decline.  Our pattern recognition software has not identified a pattern that predicts a decline.  The advance on the S&P 500 was sufficient to reverse our stop loss trigger, so our automated forecast has returned to a growth trend.  This appears to be sporadic changes in our automated forecast that occur at market turning points and not a signal of growth.  Should the S&P 500 decline about 14 points on Thursday (-0.9%) our stop loss algorithm could trigger again and change our automated forecast back to an uncertain trend.

Subjective Comment:

Ignore our automated forecast right now and do not invest in US equities.  The technical patterns developing suggest growth is unlikely.  Our automated forecast returned to growth by a reversal of our stop loss trigger, and that is much less reliable than the daily pattern formation.  Our advice remains to avoid US equities and to accumulate cash for now while waiting to see what develops with the US money supply trends.  Continue to avoid all bonds and consider investing in price inflation hedges.  We still think price inflation is highly likely later this year.  We encourage you to read this article on the Ludwig von Mises Institute web site.  It describes why price inflation is likely to occur.  Also remember that official Consumer Price Index numbers are less reliable than actual price inflation.  Alternative price inflation data is available at ShadowStats.com and also from MIT’s Billion Prices Project.  You must determine for yourself what price inflation hedges are appropriate for your investing circumstances.  When considering how much to invest in price inflation hedges, we encourage you to only invest that amount you know you can leave invested for a long time horizon.  Do not invest in TIPS bonds as a price inflation hedge.  TIPS bonds should be avoided like all other bonds.  TIPS bonds only correct via the official CPI and official CPI will continue to underreport actual price inflation.  When price inflation heats up, all bond prices will fall.  If you own any bonds, sell them now.

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