For Thursday April 18, 2013, We Recommend Against Investing

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Investment Recommendations:

Avoid US stocks right now.  Price inflation hedges remain good long-term investments despite Monday’s drop in the price of precious metals.  Continue to avoid all bond investments.

 Technical Comments:

The S&P 500 declined 1.4% on Wednesday, giving up all the gains achieved on Tuesday.  S&P 500 volume was, well, as of this posting we don’t know.  Daily market data with the volumes has been delayed for unknown reasons.  We will comment on the volumes in tomorrow’s post.

Wednesday’s drop was enough to again trigger our stop loss algorithm and change our automated forecast to an uncertain trend.  If the S&P 500 were to advance about 6 to 7 points on Thursday (+0.4%) our forecast could change to a growth trend.  Large one-day swings can cause frequent shifting of our forecast back and forth.

Subjective Comments:

As we mentioned in our prior post, it is typical at market turning points to experience high volatility combined with daily pattern development suggesting both market growth and market decline.  While these contradictory patterns can and do develop at the same time, it is the fully formed patterns that have to be used in decision making.  Yesterday a fully formed growth pattern presented itself.  It is not a good sign for the market to decline 1.4% following a fully formed growth pattern, and that’s why we expressed skepticism about yesterday’s growth pattern.  Last week saw mostly growth pattern development, and this week has been seen negative pattern formation.  The combination of last week combined with the one strong up-day this week is why a fully formed growth pattern occurred yesterday.  If the market had been declining for many weeks then this formation could identify a bottom.  That’s what the pattern detection algorithm is looking for.  Since this pattern occurred after weeks of market growth, we put less weight on its significance when evaluating our subjective investment recommendation.

The Eurozone continues to show signs of distress.  The EuroStoxx 50 market index experienced its biggest 4-day loss in 10 months (hat tip ZeroHedge.com).  The German DAX index experienced a flash crash and Egan-Jones downgraded German debt from A+ to A with a negative outlook.  Economic news from China is not as good as it has been which means it is probably very bad.  After years of aggressive money printing in China the predictable debt bubble is causing problems.  These international financial problems can spill over and impact investor confidence in the US.

Price inflation remains a serious concern and this is why we continue to recommend price inflation hedges as long term investments.  Regardless of what the official Consumer Price Index from the government says price inflation is in fact accelerating.  When measured via the official method used in 1980, the current CPI is almost 10% (hat tip Shadowstats.com).  MIT’s billion prices project, which updates price inflation daily from online sources, shows the online index of price inflation growing even while official CPI is not.  Price inflation is also why we urge you to avoid all bond investments.  When price inflation becomes more obvious bond investors will demand a premium to offset the loss in purchasing power of the US Dollar.  That will force bond prices down.  Should the Federal Reserve stop printing money to buy bonds then demand for bonds will fall, and then bond prices will fall too.  If you own any bonds or bond funds, sell them.

One Response to For Thursday April 18, 2013, We Recommend Against Investing

  1. The daily S&P 500 data with volumes remains unavailable with less than 90 minutes until US markets open on Thursday, 4/18/2013. What’s up with Standard and Poor’s?