For Wednesday March 6, 2013, We Recommend Against Investing


Technical Comment:

The S&P 500 advanced 0.96% on Tuesday with volume above Monday but below the 30 day moving average.  Tuesday could be considered a strong-volume up-day, which would be a change in the recent trend.  The below average volume provides a counter point and avails the counter interpretation of a light-volume up-day.  It is up to each person to decide which way to interpret these facts.  Our automated software does consider Tuesday a strong-volume up-day, but there have been so many strong-volume down-days recently that this one reversal in the trend does not upset the overall pattern.  If strong-volume down-days return, our forecast is likely to identify additional patterns of uncertainty for US markets.  Our growth forecast is based on the recent reversal of our stop loss algorithm, but the recent advance in the S&P 500 index has placed it 28 points above the stop loss trigger.  Should a decline of 28 points (-1.8%) occur on Wednesday, our forecast could change to an uncertain trend.

Subjective Comment:

The Dow reached an all-time high on Tuesday.  The S&P 500 has not been this high since Halloween 2007, five and a half years ago.  The S&P 500 advance might be the beginning of a new up-trend, or the market could still turn down.  Last week our pattern recognition software identified a 50/50 chance of growth or decline.  Since then we have not seen any evidence the market would advance until Tuesday, which was the first strong-volume up-day.  Even then, the below average volume leaves Tuesday as a single weak data point in contrast to 2 to 3 weeks of negative data.  We don’t know which way the market will go from here.

US banks might have resumed aggressive lending.  We don’t know and will have to wait for Thursday to get the next update for money supply data, and US banking reserve data.  The data this Thursday, as always, is about 10 days old when it is published.  If Wednesday and Thursday should show strong-volume advances combined with data showing a resumption of aggressive lending by US banks, that would be evidence that could change our subjective opinion about investing.  Without this, we remain cautious about investing in US markets.  Continue to hold and accumulate cash until the present uncertainty dissipates.  Price inflation hedges remain good long-term investments because the Fed is still printing money at $85 Billion per month with no end in sight.  Hold what you have and do your own research to determine if you can accumulate more price inflation hedges.  Avoid all bonds, including TIPS.

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