For Thursday May 23, 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:

The S&P 500 declined 0.8% on Wednesday with volume above Tuesday and stronger than the 30 day moving average.  Wednesday was a strong-volume down-day and the first such down-day in almost 5 weeks.  The past 5 weeks have seen the market advancing on light and strong volume, but until this Wednesday the declines had been on light volume.  A single strong-volume down-day is not enough to change our technical forecast, but it could be the beginning of a pattern.  The patterns that matter take multiple days to form, so if a technical change occurs it will be a few days before our pattern detection software identifies anything.  If the S&P 500 were to decline about 41 points on Thursday (-2.5%) our automated forecast would likely change to an uncertain trend.

Subjective Comments:

US markets reacted to information from the Federal Reserve on Wednesday.  Part of the reaction was to testimony given by Chairman Bernanke to Congress, but the strong drop occurred after release of the meeting minutes from the last Federal Open Market Committee (FOMC) meeting.  We encourage you to read this post at where the details of Wednesday’s market action are nicely summarized.  The suggestion the Fed’s money printing could slow or stop drove the market down.  Although it is unlikely most market participants are aware of the details of Austrian Business Cycle Theory (ABCT), the basic connection between monetary policy (AKA “money printing”) and the stock market is understood by most traders.  This is why we have been writing for weeks that our automated forecast should be ignored right now.  The growth rate of the US M2 money supply has slowed significantly, and this means a crash will occur soon.  There is no way to avoid the crash now that the money printing has caused the current bubble-boom and associated distortions in the US economy.  The crash could be delayed, but only if the money supply growth accelerates considerably.  We will continue to analyze and report on the weekly money supply updates which are published every Thursday.  Continue to keep your investable funds out of US markets right now.

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