For Monday October 21, 2013, We Recommend Against Investing


Investment Recommendations:

Avoid US markets and watching closely to see if an up-trend develops before investing.  Cash positions (including currency) and price inflation hedges are recommended right now.

Technical Comments:

The S&P 500 advanced 0.65% on Friday with volume above Thursday and higher than the 30 day moving average.  Typically Friday is a light volume day, but instead Friday was the second strong-volume up-day in the past three trading sessions.  Our forecasting process is continuing to establish a stop loss baseline, so there is currently no stop loss protection.  It will take a few more days to establish the new baseline.

Subjective Comments:

If you have not read our post from yesterday, we encourage you to do so.  Please note the money supply growth and the graph provided when reading it.  In light of subtle indications that US M2 might be growing at a faster rate, it is very interesting to see US markets advancing to new record highs on strong volume.  We said a few days ago and still believe that multiple strong-volume up-days in US markets could be the first indication of an accelerating money supply growth.  This is why we see thee subtle uptick in the US M2 money supply and this past week’s strong-volume up-days as very interesting.

If we have had a minor uptick in the money supply then the current market advance will putter out.  Austrian Business Cycle Theory explains the boom-bust cycle, and the money supply trends strongly point to a bust in the near future.  Only a sudden and strong money supply growth acceleration could create another boom and delay the coming crash.  We do not know what will develop next.  We will continue to watch the daily market data, weekly money supply and biweekly banking reserve data for clues to the next trend.

Welcome to all our new readers!  We recently forecasted a market decline and we were wrong.  We still think a decline is coming, but we are admitting we don’t know when and acknowledging the possibility a boom could resume.  The odds still seem stacked towards a crash, but that is not happening right now.  We hope to earn and keep your trust by explaining how we arrive at our predictions and quickly admitting when a prediction turns out to be wrong.  Enjoy your weekend and be sure to check with us again Monday evening.

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