For Monday December 23, 2013, We Recommend Investing in US Markets



Investment Recommendations:

We are changing our investment recommendation.  It is time to invest in US stock markets.  Price inflation hedges should be held for the long term and remain a good idea as we see price inflation heating up in 2014.

Technical Comments:

The S&P 500 advanced 0.48% on Friday with volume above Thursday and higher than the 30-day moving average, making Friday the third strong-volume up-day this past week.  Volume on Friday was very strong at over 5 Billion shares traded on the S&P 500.  The reason for the very high volume is that Friday was a triple witching day which occurs 4 times per year on the 3rd Friday of March, June, September and December.  Three types of securities (index futures, index options and stock options) all expire on triple witching days, so there is typically a lot of selling.  Since the 3rd Friday in December 2011 (2 years ago), the only trading days above 5 Billion shares have occurred on these days.  Friday also marked another record high for the S&P 500.  The S&P 500 would have to decline about 27 points on Monday (-1.5%) to trigger our stop loss algorithm and change our automated market forecast to an uncertain trend.

Subjective Comments:

With all of the selling on Friday’s triple witching day, it is very interesting the S&P 500 advanced a half percent.  There was plenty of demand to soak up the selling and still drive equity prices up.  The three strong-volume up-days this week did not form a predictive pattern, but the rapid accumulation of these types of days is bullish.  It is also a strong indicator to see the market hold its gains after large upward jumps.  There have been negative indicators recently along with these positive signals, but it must be remembered that both positive and negative indicators appear at marking turning points.  It appears the growth indicating indicators are occurring more frequently.  This implies US markets will grow from here.

Given the money supply growth acceleration we’ve discussed recently and the increasing frequency of strong-volume up-days, it is time to recommend investing in US markets.  The money supply acceleration is now showing enough strength that we think a market decline in the near future is unlikely.  It is possible a slowdown in the growth of the money supply could occur.  If that happens we think there will be enough time to react and back out of the market before any serious decline occurs.  We also think the money supply needs to accelerate further for a bubble-boom to continue beyond the near future.  The growth of banking required reserves strongly suggests M2 is about to accelerate further.

We recommend investing in leveraged index funds that track US markets.  The accelerating growth of the money supply will not only drive up asset prices but it will eventually create price inflation.  This makes leveraged investments necessary so that market gains are more than just nominal but real increases in purchasing power.  Price inflation hedges remain good investments for the long term and are likely to perform much better in 2014 compared to 2013.

Enjoy your weekend and remember to take a few moments to place your buy orders so they are executed first thing on Monday.

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