For Thursday April 11, 2013, We Recommend Against Investing


Investment Recommendations:

Avoid US stocks right now, even though they are going up.  Price inflation hedges remain viable alternative investments.  Continue to avoid all bonds as they will fall in price when price inflation eventually accelerates.  Avoid TIPS bonds, municipal bonds and bond funds for the same reason.

 Technical Comments:

The S&P 500 advanced 1.2% on volume above Tuesday and above the 30 day moving average.  Wednesday was a strong-volume up-day.  An optimistic interpretation would be to reevaluate Tuesday as a strong-volume up-day and decide Wednesday was a 2nd day in a row.  However, it was just over a week ago that a few strong-volume up-days occurred.  When the market reaches a turning point it is not uncommon to see some days appear strong and others weak.  It takes several days to for a predictive pattern to form, and that has still not happened.  From our technical analysis alone we remain uncertain which direction US stock markets will go in the near future.  If the S&P 500 declines about 37 points on Thursday (-2.4%) our automated forecast could change to an uncertain trend.  A 2.4% drop is unlikely considering the historic daily changes in the market, but it is possible.  We do not this US markets are yet so fragile that a large drop is likely.

Subjective Comments:

The S&P 500 and the Dow both set record highs again on Wednesday.  There is a definite up-trend in US markets but we are concerned about how much the upward motion of US stocks will continue.  We admit we’re very unsure right now which direction US markets will go.  We see signs in our technical analysis and money supply analysis that explain the weak volume we’ve seen in the market, yet that also explain why the market continues its upward trajectory.  If US banks accelerate lending, the bubble-boom will continue.  If not the bubble will pop.  Austrian Business Cycle Theory explains why this is so, but it does not provide a means for precise timing.  Our automated pattern recognition software attempts to estimate the timing of turning points in the market.  Several weeks ago a pattern that suggests 50-50 odds of growth or decline was detected.  Since then there has been daily data that is more consistent with weakness, but the overall market has continued to climb.  We’ve watch the money supply growth decelerate and now resume accelerated growth.  We are at a transition point, but we don’t know if the transition will be a turning point to a downward market trend, or a pause prior to resumed market growth.  We will continue to tell you when we are unsure.  When it becomes more obvious what will happen, we will change our recommendation.  For now we remain concerned enough to recommend against investing in US equity markets.

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