For Thursday August 1, 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 declined 0.01% on volume higher than Tuesday and above the 30 day moving average.  The index change at the end of the day was barely below yesterday, but the trading session was volatile with an intraday high of 1698.43.  Our pattern recognition software classified Wednesday as a strong-volume down-day, and it is interesting volume was above average.  This is only the second above average volume day in the past month.  One day does not make for a pattern, but the pattern over the past two weeks has 4 strong-volume down-days.  This is not a completely formed pattern, but it must be watched closely.  The potential for a fully formed pattern with a predictive value is increasing.  The very small drop in the index was not enough to change our market forecast, but a drop on Thursday of about 1 to 2 points would likely be enough to trigger our stop loss algorithm.  That would change our forecast to an uncertain trend.

Subjective Comments:

If the S&P 500 had not dropped very quickly right at the end of the session, Wednesday would have been a strong-volume up-day.  The drop was strong and curious to be sure, but this is why our pattern detection software looks for the development over days and weeks.  It is never a good idea to change investment portfolios based on a single trading day.  Should strong-volume down-days continue to accumulate our forecasting process could likely identify a predictive pattern.  The pattern that could develop would be one of two possible patterns.  A 50-50 pattern could develop, meaning the odds of a market advance or decline are equal to a 50-50 coin flip.  The other pattern that could develop is the indication of a market decline.  If a decline pattern develops it would be an opportunity to invest in funds that grow when markets decline (short investing).  We think it might be a bit early for short investments.  We’re expecting a short opportunity to develop in the coming weeks, but now seems a bit too soon.  Of course this is strictly an opinion and it is much more prudent to stick to facts.

The relevant facts are the near zero growth in the US money supply since the start of the year following 9.2% growth in 2012.  Per Austrian Business Cycle Theory the economic conclusion is a market and economic crash is coming as a result of the massive money supply growth in the past combined with the near-zero growth now.  There is no avoiding this crash, but it could be delayed if the money supply begins strong growth very soon.  We think this is highly unlikely.  Last week we explained how US M2 has been moving sideways in a zigzag pattern.  Tomorrow we will get an indication of the money supply growth remains near zero or if something has changed, although it might be until next week or the week after before the money supply data is conclusive.  Be sure to read our update tomorrow.  Also, tell your family and friends to get out of the US stock market now.  We expect US markets to crash in the near future based on Austrian Business Cycle Theory and the money supply facts.  We’re guessing the crash will happen before the end of October this year.

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