For Tuesday August 27, 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 0.4% on Monday with volume below Friday and below the 30 day moving average volume.  After exceptionally low volume every day last week, Monday was even lower than each day last week.  The last time daily US market volume was lower was July 3rd, the day before a major US holiday.  Monday was a light-volume down-day.  The decline in the S&P 500 might have normally been enough to trigger our stop loss algorithm, but that did not happen.  Instead a subroutine designed to minimize spurious stop loss triggers kicked in and reset the trigger level.  As a result the S&P 500 would have to decline about 30 points (-1.8%) on Tuesday to trigger the algorithm and change our market forecast to an uncertain trend.

Subjective Comments:

We recommend against investing.  Our automatic market forecast is based purely on the daily market data of the S&P 500 and it does not factor for US money supply growth rates.  Austrian Business Cycle Theory correctly describes how the boom-bust cycle is caused by money creation and fractional reserve lending.  The very light volume is an indication the market is nearing a turning point.  Our stop loss algorithm can cause frequent changes when the S&P 500 moves sideways with day-to-day volatility.  As a result we designed the subroutine to change the trigger under certain circumstances.  If the market were growing with strong volume, then this subroutine is a good algorithm that prevents sell signals when we should be investing for growth.  The subroutine does not work well when the market has begun a decline as is now the case.

If you are looking for a good place to invest instead of holding cash, consider price inflation hedges.  One exception to this recommendation is TIPS bonds.  Avoid all bonds, including TIPS.  Real assets are the type of price inflation hedges we’re suggesting, but please do your own research to determine what is best suited for your circumstances.

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