For Wednesday November 13, 2013, We Recommend Against Investing


Investment Recommendations:

Avoid US markets and watch closely to see what trend develops.  Cash positions (including currency) and price inflation hedges are still recommended.  There is too much uncertainty in US markets right now to make an investment recommendation, but things are turning bearish again after having been bullish for most of October.

Technical Comments:

The S&P 500 declined 0.24% on Tuesday with volume above Monday but below the 30 day moving average.  Tuesday was a strong-volume down-day and our pattern detection software identified the formation of a 50/50 pattern.  Historically when this pattern has occurred there has been a 50% chance of a market increase or a market decline.  This 50/50 pattern is the result of the rapid accumulation of strong-volume down-days, so it is most commonly associated with market weakness.  However, the historic performance has been such that it’s not always a good predictor of an imminent market decline.  If the S&P 500 were to decline about 42 points on Wednesday (-2.4%) our forecast would likely change to an uncertain trend.

Subjective Comments:

With the 50/50 pattern appearing on the continued accumulation of strong-volume down-days we are turning more bearish in our subjective opinion.  Since Tuesday had volume below average it is possible another strong-volume day could occur Wednesday.  The accelerated money supply growth in October appears to have delayed the market crash we were expecting, and now it appears the market is quickly showing signs of weakness.  If the money supply data shows the October M2 growth acceleration was brief and M2 growth has slowed down, it is very troubling that the market is reacting so quickly to changes in the money supply.  After 9 months of weak money supply growth the market and US economy are on the precipice of a crash as described by Austrian Business Cycle Theory.  The rapid reaction to M2 acceleration in October, and now what could be a deceleration in November, implies the market remains near the edge of a crash and without immediate and sustained accelerated growth of the US M2 money supply a crash is likely to occur.  Continue to watch the daily market data closely and carefully evaluate US M2 when the next update is published this Thursday.

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