For Friday, Oct 7, 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:

The S&P 500 closed up 1.8% on Thursday, marking the 4th day in a row of huge gains for US markets.  Thursday’s increase was on volume higher than Wednesday’s and higher than the 30-day moving average volume.   To trigger the stop-loss algorithm of our automated forecast, the S&P 500 would have to drop about 52 points on Friday, or 4.4%.

Subjective Comment:

The US market is still being heavily influenced by European markets.  Thursday’s up-day for the US was large, but on a percentage basis only half as large as the up-day in Europe.  The Eurozone debt crisis does pose a huge risk to US banks as there are many counterparties to European Credit Default Swaps (CDS).  No one is sure the magnitude of this risk.  It is likely huge and a default by the indebted countries in Europe will likely cause bankruptcies of several (possibly all) of the major European banks.  The CDS exposure could cause bankruptcy for several US banks, some of which are not doing well already.  It is not clear if governments and central banks will bailout the Too-Big-To-Fail commercial and investment banks again since this is becoming politically unpopular, but they probably will.  Fear of bank failures and a crashing economy is likely dominating investors following China, Europe and the US.

The fear of a crashing economy and stock market is justified for China and Europe, but not so for the US.  China and the Eurozone have slowed the expansion of their money supplies after a long period of money printing.  This is why those economies are crashing.  This always happens after the manipulated-boom period caused by money printing.  The US has been printing money like crazy since August 2008.  The period of Quantitative Easing (QE1 and QE2) added about $1.6 Trillion (yes, Trillion) to the bank’s excess reserves.  Now that QE has ended, the banks have been lending.  The resulting money growth in the US from the fractional reserve money multiplier is growing the money supply at a rate faster than during QE.  Weekly data was published by the Federal Reserve today, and the 3-month annualized growth rate of M2 (seasonally adjusted) is at 19.2%.  This is the first weekly growth rate below 20% in the past eight weeks.  The weekly estimates by the Fed are a little less reliable than monthly estimates which should be published next week.  This rapidly expanding money supply will drive a manipulated-boom in the US economy and stock market along with serious price inflation.

The increase in Thursday’s US market index on higher volume is a more bullish indicator than the increases the previous 3 days.  Since European markets were up stronger than the US, it appears the US is still following Europe instead of growing on its own.  If market participants believe the Fed will provide funding to Europe via the 3-months of credit swaps in October, November and December, then European markets may begin to recover.  Thursday also marked the last interest rate setting meeting of the European Central Bank led by outgoing President Trichet.  The next rate setting meeting in early November led by incoming President Draghi is expected to result in a rate cut, meaning the resumption of Euro-printing.  This expectation could also drive European markets higher.  We still expect some volatility in the near term.  It is time to consider investing some funds in US markets.  We suggest caution and investing a small amount now while waiting to see what develops.

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