For Monday August 19, 2013, We Recommend Against Investing


Investment Recommendations:

No Change: 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 0.33% on Friday with volume below Thursday but above the 30 day moving average.  Our pattern recognition software classified Friday a light-volume down-day since volume was below Thursday, but the above average volume is notable.  In the past 6 weeks there have been only 6 above average volume trading days, and two of them were Thursday and Friday of this past week.  Downward index motion on strong volume is a technical sign of weakness.  Our market forecast remains uncertain because our stop loss algorithm remains triggered.  An advance on the S&P 500 of about 1% on Monday could be enough to reverse the trigger and return our forecast to a growth trend.

Subjective Comments:

Even if our automated forecast returns to growth we would not recommend investing right now.  The stop loss algorithm is susceptible to frequent changes when market volatility increases.  The recent appearance of the 50/50 pattern from our proprietary techniques and the high concentration of Hindenburg Omens, combined with the strong-volume down-days provide sufficient technical weakness for investing caution.  When combined with the very weak money supply growth relative to the 2012 growth and the economic implications described by Austrian Business Cycle Theory (ABCT) and we absolutely recommend against investing in long positions in US stock markets.

Anecdotal evidence pointing to economic weakness continues to accumulate.  Consumer confidence has dropped to a 4-month low and the housing market remains weak.  The weakness in the housing market is evidence of the capital goods sector crashing.  ABCT explains why capital goods sectors of the economy boom first and crash first.  The weakness in consumer confidence shows the slowing economy is starting to reach the consumer sectors too.  Based on past history, we think US markets are going to trend lower from here with volatility and some sideways movement.  We think bond prices will continue to drop as interest rates climb despite efforts by the Fed to keep rates low.  It would take massive money supply growth to restart the bubble boom, and it would have to happen very soon and be very strong.  Without that we are still sure US markets are heading for a crash and our best guess on timing is by the end of this October.

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