For Friday October 11, 2013, We Recommend Shorting US Markets

Short_Recommendation Decline_Image_v02

Investment Recommendations:

Our automated forecast is predicting a decline for US markets!  It is time to invest in leveraged index funds that grow when US markets decline.  If you’re going to short US markets, take action ASAP, otherwise be sure to move to a risk off position with your investment portfolio.

Here are some inverse leveraged index funds if you want to short the market: SDS and SPXU, as well as others.

Technical Comments:

The S&P 500 was up 2.2% on Thursday with volume below Wednesday’s but above the 30 day moving average.  This strong upward jump in the S&P 500 index did not trigger our stop loss algorithm, so our market forecast is still “Decline”.

Subjective Comments:

When the Republicans in Washington D.C. signaled they might agree to a short-term increase in the debt ceiling, the US markets reacted with the strongest rise in 2013.  It should be obvious that traders don’t care about the government shutdown, but they do care about a default on US Treasuries.  News from D.C. is confusing at best, so US markets are likely to bounce up and down until clarity is provided.  There was news after US markets closed that caused S&P 500 futures to drop over 15 points.  What we are watching closely is the volume combined with the index movement.  Volume was above average but it was below Wednesday.  If down-days continue to be on strong-volume and up-days are on light-volume, then our forecast will continue to predict a market decline.

The weekly US M2 (not seasonally adjusted) money supply data was updated today with data through 9/30/13.  Here are key growth rates:

  • 2012 Annual Growth was 9.3%
  • 2013 YTD Growth is 2.7% annualized
  • For the past 22 weeks (5 months) straight line growth has been 6.0% annualized

We are still forecasting a market decline this month and recommend investing in short positions.  However, be aware of the risk.  US M2 is currently growing at 6.0% which is less than the 9.3% from last year.  US M2 growth since the start of 2013 is 2.7%, so the slower M2 is setting up a market crash as explained by Austrian Business Cycle Theory (ABCT).  The risk involved in shorting US markets exists because ABCT does not attempt to predict when the crash will occur.  ABCT explains why under the current money supply conditions a crash must and will occur.  The actions of D.C. politicians will cause day-to-day volatility, and if US Banks should start aggressively lending, then the timing of the coming crash could be delayed (not avoided, just delayed).  Our recommendation to short US markets stands, but the money supply growth could be strong enough to delay the crash a little while longer.  If US Markets continue to advance our stop loss algorithm will trigger.  Consider your circumstances carefully and invest what you think you can risk.  If you are unwilling or unable to invest in a short position right now, at least move to a cash (risk-off) position and stay out of US stocks right now.

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