For Wednesday May 15, 2013, We Recommend Against Investing


Investment Recommendations:

Avoid US stock markets right now.  Price inflation hedges remain good long-term investments.  Continue to avoid all bond investments.

 Technical Comments:

Marking another all-time high, the S&P 500 advanced 1% on Tuesday with volume above Monday but just below the 30-day moving average.  Our pattern recognition software classifies Tuesday as a strong-volume up-day, and this continues the pattern of market growth on strong volume into the 4th consecutive week.  If the S&P 500 declines about 56 points on Wednesday (-3.4%) our automated forecast would likely change to an uncertain trend.

Subjective Comments: has noted for the past 18 weeks in a row, each Tuesday the Dow Index advances.  In a prior post suggested the connection to market performance on Tuesday is likely the US Treasury’s Primary Open Market Operations.  Whatever the cause the Tuesday rally has now become something of note among traders. sums it up with this interesting fact:

Summing it all up – from January 25th, the S&P 500 is up 9.8%; without Tuesdays, it is unchanged.

We looked at our pattern recognition history to look at the past 18 Tuesday.  15 were strong-volume up-days for the S&P 500, with 1 being a light-volume up-day and 2 a strong-volume down-day.  The S&P 500 has been very consistent following this DOW pattern, but not 100%.  15 out of 18 being strong-volume up-days is very interesting, but not as interesting as the past 3+ weeks of the strong-volume down-day absence.  What we find troubling is the persistence of volume that is never very strong, just strong relative to the prior day or slightly above the 30-day average.  Remember, the US Money Supply growth rate and Austrian Business Cycle Theory (ABCT) explains what happens to asset prices, including stocks, when money and credit are increased.  Our forecasting software attempts to refine the ABCT explanation with a more precise timing of market trend changes.  The tepid strength of the market is currently incongruous with the money supply growth rate, and that is why we recommend staying out of US markets until it becomes clear what will happen.