For Tuesday December 17, 2013, We Recommend Against Investing


Investment Recommendations:

Avoid US markets and watch closely to see what trend develops.  Cash positions (including some currency outside of bank accounts) 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 advanced 0.63% on Monday with volume above Friday but below the 30-day moving average.  Monday was classified a strong-volume up-day by our pattern detection software even though volume was below average.  The recent strong-volume down-days are getting older and this is reducing the chance a negative pattern could form.  The market advance on Monday was enough to reverse the stop loss trigger and restore our forecast to a growth trend.  If the S&P 500 were to decline about 9 points on Tuesday (-0.5%) our forecast could revert back to an uncertain trend.

Subjective Comments:

The change in our forecast to a growth trend is not on the strongest of technical indicators.  When our stop loss algorithm reverses we are typically cautious about jumping back into the market.  The recent market action has seen strong-volume down-days, and our most recent predictive pattern forecasted a 50/50 chance of market growth or decline.  However, we are becoming more bullish on US markets as we see indications money supply growth could be about to accelerate.  Economic data published on Monday shows an expanding capital markets sector.  Austrian Business Cycle Theory (ABCT) explains a bubble-boom will be seen first in the capital intensive industries most sensitive to interest rates.  The recent money growth acceleration in early October along with the acceleration in Q3 versus the first half of the year appears to be showing up as ABCT predicts.

We are still not ready to recommend investing in US markets this week.  The Fed’s announcement on Wednesday will answer the “To Taper, or Not to Taper” question.  Friday this week has a triple witching hour.  This happens on the third Friday of every March, June, September and December when three kinds of securities all expire.  The triple witching hour generally increasing trading volumes and price volatility.  Next week has the Christmas holiday and is likely to have light volumes.  We will be watching the M2 money supply this week and next, and the banking reserve data next week.  If money and banking statistics continue to imply accelerated growth rates we are likely to recommend investing in early January or perhaps right at the end of December.

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