US: Honeymoon is over

By Colin Twiggs
November 8th, 2012 2:00 a.m. ET (6:00 p.m. AET)

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The S&P 500 broke support at 1400, warning that a top is forming. A 21-day Twiggs Money Flow peak below zero would indicate medium-term selling pressure. The honeymoon period leading up to the election is over. It is back to business-as-usual as the President and the Republican-controlled Congress arm-wrestle over taxes, entitlements and the budget deficit. Speaker of the House John Boehner extended an olive-branch of sorts, saying that Republicans were willing to accept additional tax revenues, but his emphasis remains on reforming entitlement programs and curbing "special interest loopholes and deductions".

S&P 500

The Dow Jones Industrial Average similarly broke support at 13000 on the weekly chart. Breach of support and the primary trendline warn that a top is forming. Reversal of 63-day Twiggs Momentum below zero would suggest a primary down-trend. Recovery above 13300 is unlikely at present but would indicate another advance.

Dow Jones Industrial Average

* Target calculation: 13000 + ( 13000 - 12000 ) = 14000

Of course, in nominal terms a dollar is always worth a dollar. But in real terms, the value or purchasing power of a dollar falls in half each time the cost of living doubles. During the period since the United States left the gold standard in 1933, the price level has gone up nearly 18 fold; a dollar in 2012 has less purchasing power than 6 cents in 1933. That sort of currency depreciation is almost impossible under a gold standard regime. Indeed, the cost of living in 1933 was not much different from what it was in the late 1700s. This is the most powerful argument in favor of the gold standard.

~ Scott Sumner: