For Tuesday, Oct 18, the market forecast is for growth

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

Here are some options:

2x Leveraged ETFs


Russell 2000

S&P 500




3x Leveraged ETFs


Russell 2000

S&P 500




Technical Comment:

On Monday US markets declined sharply.  The S&P 500 closed down 1.94% on volume higher than Friday but below the 30-day moving average volume.  On Tuesday the S&P would have to decline about 22 points (1.8%) for the stop-loss algorithm of our forecasting system to flip the forecast from growth to uncertain.

Subjective Comment:

Evidently US markets remain highly susceptible to the Eurozone problems.  News from Europe suggests the bailout mechanism might not be ready politically, and concerns are rising about the exposure of French banks to the sovereign debt of several European countries.  These are legitimate concerns and any bailout mechanism will not prevent the coming problems.  At best bailouts can delay the day of reckoning.  While Europe waits on its bailout, the bailout of US banks has been on-going courtesy of the Federal Reserve.  After pumping $1.6 Trillion into the banking system via Quantitative Easing (QE1 & QE2), now the Fed is providing bailout funds via Operation Twist.  OT is not adding funds to the money supply (thankfully), but the primary dealers (big banks) are making a commission on the Fed’s purchase of bonds.  Additionally, the Fed is attempting to bailout European banks via the Dollar swaps in October, November and December.

We remain convinced all of the newly created Dollars over the past three years will cause a manipulated boom in the US economy and stock market.  The US money supply is now expanding via the fractional reserve money multiplier at incredibly high rates.  US banks appear to be making loans as fast as they can.  Every loan creates new credit, adding to the money supply.  As the loaned funds are spent, they eventually end up in another demand deposit account at another bank.  Each new deposit can be lent out again with only 10% required reserves.  This is how the money multiplier can, over time, expand the excess reserves up to 10 times.  With about $1.55 Trillion of excess reserves remaining in the banking system, banks can lend into existence another $15 Trillion dollars.  Adding $15 Trillion would more than double the current M2 money supply.  The process takes time, but it is happening rapidly.  This will fuel the coming manipulated boom and cause consumer prices to rise as well.

While we are extremely confident of what will happen, it is difficult to estimate when the expanding money supply will decouple US markets from the Eurozone.  Our automated market forecast is the tool we rely upon for signals of when to time the market.  It continues to forecast growth.  We update our forecast daily, but the forecast should be considered over a longer horizon than each day.  Our forecast is for growth over the coming weeks.  Any single day could go up or down during the overall market trend.  Please remember this when using our daily forecast.  The market pull-back on Monday was on volume higher than Friday.  As a single data point, this is a technical signal of weakness.  However, higher volume on Monday versus Friday is typical of historical volumes, and Monday’s volume was below the 30-day average.  Also, a single data point is not enough to create a pattern that predicts decline.  The S&P 500 index value of about 1216 to 1220 remains a source of technical resistance to growth.  Over the past few months every time the S&P 500 has grown to this level, it reverses itself.  We think the next sign of technical growth will be when the market moves strongly above this level on large volume.  It might be wise to wait until this technical resistance is overcome before investing.  If you can tolerate more risk and volatility, consider investing now.  The unknown remains how long Eurozone problems will overpower the growing US money supply.

If you’re interested in learning more about how the money supply grows and affects the economy and stock markets, we recommend learning about the fractional-reserve banking, the resulting money multiplier and Austrian Business Cycle Theory.

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