For Thursday January 30, 2014, We Recommend Against Equity Investing


Investment Recommendations:

We are changing our subjective recommendation.  Sell US equity positions and hold cash.  Price inflation hedges should be held or accumulated for the long term as price inflation is starting to accelerate.  Avoid all bonds, including the new MyRA bonds announced recently.

Technical Comments:

The S&P 500 fell 1.02% on Wednesday with volume above Tuesday and higher than the 30-day moving average, creating another strong-volume down day.  With the strong-volume down-day on Wednesday our detection software identified a 50-50 predictive pattern in the daily S&P 500 data.  When this pattern has appeared historically there has been an equal chance of market growth or a market decline.  The S&P 500 remains below our stop-loss trigger and would have to advance about 21 points on Thursday (+1.2%) to return our forecast to a growth trend.

Subjective Comments:

The 50-50 pattern combined with a 1% strong-volume down-day must be respected.  The Fed announced another $10Billion per month taper starting in February, which will slow the printing press to $65 Billion per month.  The market decline occurred on Thursday after this was announced.  Clearly market participants believe the taper and the poor economic news from the fourth quarter of 2013 are pointing to a decline.  The 50-50 pattern developed because of the combined buying and selling behavior of market participants.  It does not matter how much we think the market will advance based on the money supply growth rate.  There is clearly enough concern among market participants that the near term has become very uncertain.  We are now recommending a risk-off position.  Sell your equity positions but hold and consider accumulating price inflation hedges.  If the money supply continues its accelerated growth there will be an opportunity in the near future to get back into the market, but now is not a good time.  The opportunity to get back into a long equity position could come soon, so continue to watch the money supply and market carefully for the opportunity to get back in.

The state of the union address yesterday included an announcement of new US government bonds for individuals to invest their retirement savings.  These are called “MyRAs” for “My Retirement Account”.  AVOID MyRAs!  Broke governments historically have stolen the retirement savings of their citizens, and MyRAs are a step in this direction.  The US government is broke.  Avoid all bonds.  Bond prices will fall as price inflation accelerates.  Price inflation, as measured by the online billion price index, is starting to accelerate.  Price inflation hedges will perform well as a result.

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