For Tuesday April 16, 2013, We Recommend Against Investing

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Investment Recommendations:

Avoid US stocks right now.  US money supply growth, measured by a straight-line curve fit, is accelerating after dropping about 3 months ago.  This means price inflation will continue and likely accelerate.  It also means there are increased chances the current bubble-boom in the stock market will continue, but only if the money supply continues to accelerate more.  Price inflation hedges remain good long-term investments despite Monday’s drop in the price of precious metals.  Continue to avoid all bond investments across the board.

 Technical Comments:

The S&P 500 declined 2.3% on Monday with volume above Friday and higher than the 30 day moving average.  Monday was a dramatic down-day with strong-volume.  The last time the S&P 500 dropped by more than 2.3% in one day was last November 7th; just over 5 months ago.  Last week saw daily market action that suggested a strengthening market.  Monday pretty much wiped all of that out.  Monday saw the market give up all its gains from the prior week, and it was a strong-volume down-day.  Our pattern recognition software looks for multiple days before a prediction is created, so one day is never a pattern.  However, Monday was identified as the beginning of a pattern.  Fully formed patterns are rare, but the beginning of one is still notable.  Monday’s decline was also sufficient to trigger our stop-loss algorithm and change our automated forecast to an uncertain trend.  Should the S&P 500 bounce back up by about 7 to 8 points on Tuesday (+0.5%) our automated forecast could return to a growth trend.

Subjective Comments:

In the past few posts we have discussed our deep analysis of the US money supply growth rates.  With the recent acceleration of the money supply and last week’s mostly positive market action we had begun to shift our subjective analysis to a more bullish position.  Monday’s drop is why an example of why we share when we are in the process of changing our mind and the thought processes and facts that influence our recommendations.  Even if US M2 money supply continues to accelerate this week, it would seem the US economy and stock markets are fragile.  The current capital structure of the US economy is clearly very dependent on the Federal Reserve’s printing press and the money multiplier from fractional reserve banking.  In the past several weeks the daily market action has been more negative than positive.  We’re looking for sustained positive daily data combined with further acceleration of the money supply growth rate before we would recommend investing in the US market.

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