For Thursday, Sep 29, the market forecast is for growth

We recommend any leveraged ETF that grows with the US market, but please see our comments below before taking any action.

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:

The S&P 500 was down 2.1% on Wednesday. Volume was lower than Tuesday and lower than the 30-day moving average volume. The large one-day drop was not enough to trigger the stop-loss algorithm of our automated forecast. A drop of about 8 to 9 points (0.7%) on the S&P 500 on Thursday would likely be enough to switch our forecast from growth back to uncertain.

Subjective Comment:

Our automated forecast is predicting growth, but subjectively it is very difficult to guess what direction the US markets will move in the near future. The sovereign debt problems in Europe continue to be a drag on US markets. Gary North published a great description of the debt problems in Europe which we recommend if you want to understand the current problem. Martin Feldstein offers an analysis that provides reasoning why European politicians are attempting to avoid the problems that always happen after a period of monetary inflation. These articles provide excellent information about the current situation. We also noticed the short-selling ban in some European countries has been extended. Bureaucrats and politicians will always attempt to shift blame for the problems caused by excess money printing. The ban on short-selling is thus stupid both technically and politically. It has not prevented the markets from declining and it will not do so going forward (technically stupid). It also removes the convenient scapegoating of speculators, thus the politically stupid aspect of eliminating someone to blame.

Every Thursday the Federal Reserve publishes weekly money supply numbers. This will provide an opportunity to again measure the growth rate of the US money supply. The Fed’s weekly numbers often have variability, but regardless of what is shown tomorrow it is clear the growth of the money supply is rapidly accelerating based on lending from banks. The current growth rate is faster than at any time during QE-1 or QE-2. The Fed’s operation twist will have little impact on the money supply, but the continued Zero Interest Rate Policy (ZIRP) and bank lending will. The rapidly expanding supply of Dollars will eventually exert upward pressure on US stock markets and create price inflation. This temporary “benefit” will eventually result in another crash as described by the Austrian Business Cycle Theory. What’s worse is the low interest rates will cause businesses to erroneously invest in projects the economy does not need and that can’t be successfully completed. The macro outlook for the US economy is grim and we think the current depression will clearly last into 2013, past the next national election. The expanding money supply will likely create a false growth spurt and increasing stock prices, but we doubt unemployment will improve.

Continue to be cautious with your investments as it is not at all clear what the US stock market trend will do. The money supply expansion is attempting to lift the market, and Europe is clearly dragging the US markets down. Expect a continued period of high daily volatility.

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