For Monday March 11, 2013, We Recommend Against Investing

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Technical Comment:

The S&P 500 advanced 0.5% on Friday with volume above Thursday and just above the 30 day moving average.  Friday was a strong-volume up-day, marking the 3rd such day in the past week of trading.  The recent strong-volume down-days are moving into the past.  As the 50%-Growth / 50%-Decline pattern fades into the past the daily market data has been an increase in patterns consistent with market growth.  However, our pattern detection software has not identified a growth pattern.  Our automatic forecast is growth only on the recent reversal of the stop-loss algorithm.  Should the S&P 500 decline about 24 points on Monday (-1.5%) the stop-loss algorithm could trigger a change our automated forecast to an uncertain trend.

Subjective Comment:

The advance in the market is happening on strong-volume up-days, but the strong-volume is just barely above average.  Our opinion remains strongly influenced by the recent (but fading) 50-50 pattern identified by our software and it is more strongly influenced by the US money supply statistics.  Austrian Business Cycle Theory (ABCT, sometimes called trade cycle theory) explains that an accelerating money supply growth rate is needed to ignite and sustain a bubble-boom.  We explained in detail that the recent 14% annualized growth has collapsed to 1.2%.  The money supply statistics are always a week to 10 days old when published, so the most recent market advance could be the result of a resumed aggressive US M2 growth rate.  We will not be able to confirm this guess until Thursday this coming week and the following Thursday.  US banks are allowing all of the money printing from the Federal Reserve to accumulate in excess reserves.  As long as banks continue the behavior exhibited for the past 6 weeks, ABCT explains that the current bubble-boom must end.  Predicting when precisely the bubble will pop is difficult, and that’s why we use our pattern detection software to follow the movements of the S&P 500 for clues.  Unless and until we see US M2 accelerate we are not going to recommend investing for growth in US stock markets.

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