For Friday October 04, 2013, We Recommend Shorting US Markets

Short_Recommendation Decline_Image_v02

Investment Recommendations:

BIG CHANGE! Our automated forecast has changed and is predicting a decline for US markets!

It is time to invest in leveraged index funds that grow when US markets crash.

Examples of such funds are SDS and SPXU, as well as others.

Technical Comments:

The S&P 500 declined 0.9% on Thursday with volume above Wednesday and above the 30 day moving average.  Thursday was another strong-volume down-day and completed a predictive pattern.  The pattern identified by our software does not occur often, but when it has appeared in the past US markets more often declined than anything else.  This is not a stop loss trigger.  Our stop loss trigger is no longer active and our forecast will not return to a growth trend tomorrow regardless of how much the S&P 500 changes.

Subjective Comments:

Our technical forecast has confirmed what we’ve been speculating would happen.  The weak US M2 money supply growth has been in pace for over 9 months after growing 9.2% in 2012.  US markets are fragile and ready for a crash as explained by Austrian Business Cycle Theory (ABCT).  The political drama in Washington D.C. could be triggering the coming crash, but the crash would not be possible if not for the past money printing by the Federal Reserve.  The past growth of the money supply coupled with the prolonged slow growth of the money supply is the root cause reason for the coming crash.  When our technical forecast predicts a market decline we recommend investing in funds that grow when US markets decline.  How much leverage and how much to invest is up to you.  We encourage leveraged investments so you can multiply the growth of your investment, but understand this adds risk.  Our forecast is more often right, but there is always the chance it will be wrong.  Market forecasting is a probability exercise combined with economic judgment based on ABCT.  Since both ABCT and our technical pattern recognition software are pointing to a pending crash, we’re betting it is more likely US markets go down from here.  If you choose to short US markets be alert to when you want to exit and return your investment portfolio to a cash position.  We will publish when our system recommends returning to cash, so keep watching our daily market updates.  Be prepared to exit your short investment on your own judgment.  Consider a stop-loss order.  We encourage you to rely on multiple sources of information for your investing decisions.  We will be placing our orders to invest in inverse leveraged index funds before markets open Friday morning.

The appearance of short signals is infrequent.  In the past 63 years of data our system has only identified 47 instances of this pattern.  In addition to the infrequent appearance of this pattern, when it appears it tends to cluster.  For example, the pattern appeared on June 17, 2008.  The S&P 500 declined a little and then recovered a bit shortly after this occurrence.  The pattern appeared again on September 15, 2008 just before the S&P 500 began a month long crash from 1192 down to 849 on October 27, 2008.  Other times this pattern has occurred without a cluster.  We don’t know how far the market will crash or how long the decline will last.  Our forecasting process does not provide that information.  Our technical system identifies turning point patterns.  This means you have to be vigilant in paying attention if you follow our advice and short US markets right now.  Know how much loss you’re willing to sustain before abandoning the investment.  Consider carefully how long you want to remain in a leveraged investment.  These opportunities are rare, so we hope you consider investing at least part of your portfolio.  If you are not comfortable investing in a leveraged short position, then move to a risk off position to protect your wealth because markets are headed lower from here, and soon.

We have analyzed the weekly US M2 (not seasonally adjusted) money supply statistics and the biweekly data of US banking reserves.  The money supply continues on the same trend it has been on for the past 21 weeks (5 months).  The straight line annualized growth is 6.3%, but US M2 is up only 2.1% annualized since the start of the year.  Both of these growth rates are below the 9.2% growth that occurred in 2012.  US banking reserves showed an up-tick in Required Reserves and a relatively unchanged amount of Excess Reserves.  This is different than the prevailing trend which has seen Required Reserves flat and Excess Reserves growing at the rate of QE money printing.  This could indicate US banks have started lending instead of hoarding excess reserves.  It could also be noise in these data series.  The next banking update is in two weeks so it will be that long before we know if it is a signal or noise.  We’re guessing it is noise.  The US M2 money supply also showed its familiar 4-week sub-cycle bouncing around the 6.3% straight-line growth.  US M2 data is current through 9/23, which is the typical 1 to 2 week delay.  The banking reserve data is current through 10/2, which is also typical.  If the banks have accelerated lending then it should show up in M2 in the next 2 weeks.  We think it is more likely US banks are nervous about the political issues in D.C. and have not accelerated lending.  This post suggests banks are increasing the cash in ATMs in case of a panic.

Nothing in the money supply trends or in the banking reserve data has caused us to change our subjective opinion.  We have been guessing US markets would crash by the end of October.  Now that our pattern recognition software has identified the decline pattern we are more confident in that prediction.  Protect your wealth.  Warn your family and friends.  If you don’t want to short US markets, at least move to a risk-off / cash position.  Hold on to your price inflation hedges because we bet the Federal Reserve will accelerate money printing when the markets crash.

Short US Markets!

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