For Wednesday, Sep 28, the market forecast is for growth

We recommend any leveraged ETF that grows with the US market.

Here are some options:

2x Leveraged ETFs

NASDAQ 100

Russell 2000

S&P 500

QLD

UWM

SSO

3x Leveraged ETFs

NASDAQ 100

Russell 2000

S&P 500

TQQQ

URTY

UPRO

Technical Comment:

On Tuesday the S&P 500 closed up 1.1% but had been up 2.8% at the day’s high point.  Tuesday’s volume was larger than Monday and larger versus the 30-day moving average volume.  The intraday chart for Tuesday shows  volume picked up during the last hour of trading which corresponded with 15 point decline, or 1.3%.  After two days of large upward motion, the S&P 500 is about 32 points above our stop-loss trigger.

Subjective Comment:

The large upward motion on higher volume is typically a bullish indicator.  Caution is advised as the large increase was on just over half the day’s volume, followed by a 1.3% decline.  The total volume for the day was above average, but it was not twice the average volume.  The very large one-day increase of 2.8%, followed by a decline of 1.3% on increasing intraday volume is troubling.  Intraday action is difficult to interpret, as is the action of a single day.  This is why our algorithm looks for patterns over multiple days.  The recent two up-days are encouraging, but last week had several days of declines on higher volume, so the market could go either way from here.  Our forecast is for growth, but we advise caution.

Financial headlines from Europe again appear to have given European and US markets a lift on Tuesday.  European bailouts will continue along with the drama as these bailouts become more and more politically unpopular.  Day to day movement will continue to be volatile in the very near term.  The only thing that can prevent a decline in European markets and a contraction of the Eurozone economies is massive Euro printing from the European Central Bank (ECB).  Our guess is this will eventually happen, but probably not in time to prevent large drops.  Much like the crisis in the US back in 2008 when the Federal Reserve injected massive amounts of liquidity, but only after the markets crashed.  So too will this probably be how the story plays out in Europe.  Many of the large European banks are teetering on bankruptcy, so the ECB will probably be compelled to act as the lender-of-last-resort to bail them out.  It will be interesting to see if all the banks are bailed out or if any are allowed to fail.  The authorities will likely try everything they can to avoid a bank failure as the collapse of Lehman Brothers in the US is in retrospect assumed to be the event that crashed the US market.  It might have triggered the market collapse, but the underlying cause was the years of Dollar supply inflation by the Fed followed by a tightening of monetary policy.  This is always the cause of the business cycle.

The crash and decline of stock markets and economic activity occurs when monetary expansion slows, halts or reverses after a sustained period of expansion.  This is the case in both the Eurozone and China right now.  In the US the Fed has conducted a three year period of stop and go money printing with QE-1, QE-2 and the near Zero Interest Rate Policy (ZIRP).  The announcement from the Fed’s FOMC of a continued ZIRP through early 2013 means the Fed will continue to print.  The Fed’s actual monetary expansion has slowed since the conclusion of QE-2, but the expansion of the Money Supply has accelerated over the past two months as bank lending has picked up.  Bank lending grows the money supply via fractional reserve banking and the resulting money multiplier.  This accelerated growth of the US Dollar supply will eventually cause US markets to rise, along with consumer price inflation.  Guessing when is very difficult.  This is where our automated forecast becomes useful.

The basic premise upon which our forecasting algorithm is based is that market turning points happen based on the decisions of the many participants.  At turning points, there are still a lot of people who have not concluded a change in the trend will happen, so there is a lot of volatility.  Our pattern recognition software looks at price and volume action for clues if the patterns are similar to historical turning points.  The market volatility lately suggests we are at a turning point.  Our automated forecast signaled a decline forecast back on June 15th, and since then has flipped between growth and uncertain 10 times as the market volatility has triggered our stop-loss algorithm.  We believe the expanding US Dollar supply is trying to pull the market up while the tightening Euro supply is crashing Eurozone markets with a contagion effect causing downward pressure on US markets.  This explains the volatility.  We do not know when the volatility will end and a clear trend will exert itself, nor are we sure if the up-trend or down-trend will dominate.  Eventually a trend will break out and our automated forecast should allow you to quickly follow.  In the meantime it is very frustrating to follow our system as the flipping between growth and uncertain during high market volatility causes losses.

We hope our technical and subjective comments are helpful as you decide when and how to invest.  We welcome feedback by comments to our posts, via our monthly survey, by email or by leaving a reply on our customer comments page.

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