For Thursday March 7, 2013, We Recommend Against Investing

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Technical Comment:

The S&P 500 advanced 0.1% on volume above Tuesday and higher than the 30 day moving average, resulting in a strong-volume up-day for the market.  After the large increase in the market index on Tuesday, it can be considered a good sign to see the market hold its gains the following day.  The prevailing pattern has been strong-volume down-days and light-volume up-days, so there have now been 2 consecutive days where the market action is different.  If the S&P 500 were to decline about 24 points on Thursday (-1.6%) our automated forecast would likely change to an uncertain trend based on the current trigger point of our stop loss algorithm.

Subjective Comment:

About a week ago our pattern recognition software identified the 50/50 predictive pattern of growth or decline.  In the past two days we’ve seen the first evidence the market may go in the direction of growth.  Prior to this the prevailing daily market data has been more akin to a decline.  The strong-volume on Tuesday was barely above the 30 day moving average, so we’re still not convinced the market has resumed a rally.  Should volume increase a lot in combination with a large index advance, then we might start to take notice.  Of more importance will be the growth rate of the US M2 money supply.  The Federal Reserve is still printing $85 Billion per month.  Tomorrow we will get the biweekly update on banking reserves to see if US banks are accumulating excess reserves or if they have resumed accelerated lending.

We are maintaining our subjective recommendation of holding and accumulating cash and avoiding any investments in US markets.  The bubble-boom could pop if the money supply growth rate remains where it has been for the past month.  We still see price inflation hedges as a good long term investment, but only add to such positions if you can hold for the very long term.  Avoid all bonds as prices will eventually fall.  They will either fall as a result of accelerating price inflation (very likely) or as a result of a tightening money supply from the Fed (very unlikely based on recent behavior and comments).  Avoid all bonds, including TIPS.

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