For Tuesday February 04, 2014, We Recommend Against Equity Investing


Investment Recommendations:

We are changed 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 dropped a lot on Monday, declining 2.28% on volume above the 30-day moving average and above Friday’s volume.  Monday was another strong-volume down-day and another 50-50 pattern was detected.  The 50-50 pattern predicts equal odds of market growth or decline.  Our stop-loss algorithm remains in a triggered state.  If the S&P 500 were to go up about 21 points on Tuesday (+1.2%) our stop-loss algorithm trigger would reverse and our market forecast would return to a growth trend.

Subjective Comments:

The 50-50 pattern was another formation of the same pattern in the past few days.  Even if our automatic forecast were to return to a growth trend tomorrow by reversing the stop-loss trigger, we would not recommend investing in US markets right now.  It appears the past 3 months of accelerated money supply growth has not been sufficient to prevent a market decline.  The updated money supply and banking reserve data scheduled for release this Thursday will be very interesting.  We are curious if perhaps bank lending has suddenly slowed and crashed the growth rate of the money supply.  We will get a clue this Thursday if this has happened.  We suspect it might have occurred based on last week’s money supply update and the recent decline in the stock market.  At any rate we are glad we decided to exit our growth recommendation for the time being.  If the current market decline is spillover from world markets and concern about Q4 results, then it is possible US markets might recover, but only if the money supply is still growing rapidly.  If the money supply growth rate has slowed, we will remain risk averse.  We are not yet recommending a short position for US markets, but we do recommend price inflation hedges and avoiding all bonds.

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