For Thursday December 05, 2013, We Recommend Against Investing

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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, although it is probably safe to hold any currently owned equities for a few weeks.

Technical Comments:
The S&P 500 declined 0.13% on Wednesday with volume above the 30-day moving average and higher than Tuesday, making Wednesday the third strong-volume down-day in a row. This rapid accumulation of strong-volume down-days is the type of technical pattern development consistent with a weak market. So far these days have not formed a predictive pattern, but the continued rapid accumulation is very interesting and concerning for investors with exposure to long positions in US stocks. If the S&P 500 declines about 31 points on Thursday (-1.7%) our automated market forecast would likely change to an uncertain trend.

Subjective Comments:
There was positive economic news released today. In the odd world of massive money printing by the Federal Reserve, positive economic news might be spooking some investors. The Fed has threatened to taper back the rate of money printing when the economy picks up. This might explain why good news contributed to the market decline on Wednesday. This is an interesting hypothesis frequently posited by ZeroHedge.com. True or not, what we find extremely interesting is that the small declines these past three days have all been on higher volume. The Fed’s money printing and the subsequent growth rate of the money supply are the dominate factors driving US stocks right now. Austrian Business Cycle Theory explains how money supply growth rates drive bubble-booms and subsequent busts. We remain uncertain what direction US markets will take from here, but we do think the current bubble is at risk of popping without additional money supply growth. Be cautious, and be prepared for price inflation to eventually accelerate.

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