For Monday October 14, 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 0.63% on Friday with volume below Thursday and below the 30 day moving average.  Friday was a light-volume up-day.  In the past 3 weeks there is a higher concentration of high-volume down-days compared to high-volume up-days.  The light-volume nature of Friday causes our technical forecast to remain for a market decline.  Since our forecast changed to “Decline” the S&P 500 has advanced 1.46%.  This is not enough of an advance to yet trigger our alternative stop loss algorithm.  Continued upward movement of the S&P 500 could trigger the alternative trigger and change our forecast to an uncertain trend.

Subjective Comments:

For just over a week our technical forecast has been predicting a market decline.  We’re still expecting US markets to decline.  We have been subjectively speculating for weeks US markets would crash prior to the end of October.  October is nearly half over and we will soon see if our speculation comes true.  If we are wrong regarding the timing of the coming crash, we remain convinced a crash is coming soon.  Our technical forecast only looks at daily S&P 500 data to identify patterns that have historically predicted future market trends.  Our subjective interpretation of the US M2 money supply growth trends using Austrian Business Cycle Theory (ABCT) is independent from our technical forecast.  Both methods of estimating future market trends are indicating US markets are going to decline.  We are not changing our recommendation to short US markets.  If you are unable to accept the risk of a short investment right now, we strongly suggest a cash position.  Avoid long positions in US stock markets right now.

After trading ended this past Friday the Chicago Mercantile Exchange (CME) boosted margin requirements on investments that track US markets.  When this happens it forces traders who are using maximum financial leverage to sell part of their investments in order to raise cash.  This will put selling pressure on US markets on Monday morning.  This coming week will be very interesting.  The political faux-drama from Washington D.C. has ended for a short while, so the trading this coming week should be more connected to other factors.  Since the underlying money supply growth remains weak compared to last year the economic forces described by ABCT remain in place and will eventually cause markets to decline.  The US money supply growth has been accelerating recently but it remains below 2012 levels.  The mild acceleration could delay the timing of the coming crash, or it could cause a milder decline for a while before the crash occurs.  It is very difficult to guess what will happen without more money supply data.  This Thursday the weekly M2 data will be published along with biweekly banking reserves.  There was a spike in the required reserves in the last biweekly update, but we think this was noise.  This week will show if it was noise and thus no big deal, or if it was something more meaningful.  Accelerated bank lending will in turn accelerate US M2 money supply growth and could completely change the nature of our forecast.  Enjoy your weekend and please be sure to watch our daily updates next week.

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