For Wednesday July 31, 2013, We Recommend Against Investing


Investment Recommendations:

Ignore our automated market forecast and avoid US stock markets right now.  Continue to avoid all bond investments. Price inflation hedges remain good long-term investments, but only invest in price inflation hedges amounts that you can leave invested for a very long time.

 Technical Comments:

The S&P 500 advanced 0.04% on Tuesday with volume above Monday but below the 30 day moving average.  Our system classifies Tuesday as a strong-volume up-day, but in the past 2 weeks there have been 3 strong-volume down-days compared to this single strong-volume up-day.  While strong-volume up-days can be a sign of market strength, true market strength sees more strong-volume up-days than strong-volume down-days, and the strength is typically on above average volume.  The overall pattern development is not broken by Tuesday and remains more negative than positive.  The very small advance in the S&P 500 index was enough to reverse our stop loss trigger and return our automated market forecast to a growth trend.  If the S&P 500 declines 1 to 2 points on Wednesday the trigger could change our forecast back to an uncertain trend.

Subjective Comments:

The market is very close to our stop loss trigger setting right now, so our market forecast is highly likely to flip again if the market drops just a bit on Wednesday.  This does not change our subjective recommendation to keep your investments out of US markets for the time being.  Tomorrow the market is likely to react to the FOMC policy statement scheduled at 2PM Eastern time.  Ignore anything the FOMC says.  The Fed is completely clueless about Austrian Business Cycle Theory and how their money printing distorts the economy and causes the boom-bust cycle.  Of course commercial banks also contribute to the money printing problem via fractional reserve lending, but the commercial banks absolutely have refused to lend significant amounts of money since the beginning of the year.  The Fed’s QE money printing is just growing the excess reserves of commercial banks.  This creates a very unstable situation.  Should commercial banks suddenly decide to lend aggressively the money supply growth rate could accelerate, perhaps enough to sustain the bubble boom and delay the coming crash further into the future.  We don’t think banks will take this course, and the Fed seems unaware of this reality.  Track the US M2 money supply and learn about Austrian Business Cycle Theory.  This will help you understand what is happening in the market and economy.  You can track the money supply by following our blog.  We analyze the US M2 data every week and provide analysis.  Let your family and friends know.  The economic fact is a market crash is coming.  We are guessing it will occur before the end of October this year, assuming commercial banks continue their decision to restrict lending.

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