For Tuesday, Oct 25, 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:

Monday the S&P 500 closed up 1.3% on volume lower than Friday and below the 30-day moving average volume.  On Tuesday the S&P 500 would have to drop 5.2% (65 points) to cause our automated forecast to trigger a shift to “uncertain” based on our stop-loss algorithm.

Subjective Comment:

This past Friday the S&P 500 broke-out above the 1216 – 1226 level.  This was the technical confirmation we had been predicting for several days.  It is a bullish signal that US markets are holding gains above the level of resistance that has persisted for almost three months.  While it would have been a stronger technical signal if volume had been higher, Monday’s volume was only slightly lower so we see the upward motion as further confirmation the US bull rally is underway.

News from Europe continues to show a lack of agreement regarding the structure of the bailout European banks and highly indebted countries need.  There’s a saying that nicely summarizes the Eurozone crisis:

If you owe the bank a million dollars, that’s your problem.  If you owe the bank a billion dollars, that’s the bank’s problem.

The highly indebted Eurozone countries are unable to pay their debt.  The banks don’t want a default as this will wipeout their assets and force bankruptcy.  The French and Germans want the debt paid back, but it is mathematically impossible.  Sending bailout payments to the countries in debt allow them to make bond payments on time, avoiding bankruptcy until the next payment is due.  The adult solution is to declare bankruptcy and write-down the bad debt.  This would involve a lot of pain and be unpopular, so the politicians are trying to avoid this outcome in the unrealistic hope the Eurozone economy will start growing enough to pay off the debt with increasing tax revenues.  Pretending growth will eventually come means bailouts have to continue until the growth arrives.  By believing this delusion, the European officials have to decide how to pay for the bailouts.  The German taxpayers are fed up and are letting their politicians know they’re against more bailouts, hence the on-going drama of summit meetings and negotiations where the German leadership talks tough and then agrees to another bailout payment at the last minute.  We’re guessing some sort of bailout structure will be agreed upon, probably with the European Central Bank printing Euros to pay for most of it.  Some of the funding will come from the US Federal Reserve via Dollar swaps and also from the International Monetary Fund.  Until the bailout agreement is determined, rumors in the press cause European markets to go up and down.

The situation in the US is completely different.  US money supply is expanding rapidly.  QE1 and QE2 added staggering amounts of money to the US banking system where $1.57 Trillion of excess reserves are available for banks to make loans.  Required reserves are expanding near an annual rate of 70%, showing banks are lending as fast as they can.  The US M2 money supply annual growth rate has been in the double digits for about three months.  The rapidly expanding Dollar supply is pushing the US economy and stock market into its next manipulated bubble-boom.  It could last for months or years, but it will come with high levels of price inflation.  The price inflation will become a drag on the boom, so it is really difficult for us to guess how long the boom will last.  We recommend investing in leveraged ETFs tied to US market indices.  Leverage is unfortunately necessary to stay ahead of the coming price inflation.  Keep following reliable market timing signals to determine when to divest.  The longer you wait, the less growth potential will be available for you.  As US markets continue higher and economic indicators keep turning positive, more money will flow into the market driving it higher.  The best way to profit is to be ahead of the herd.

If you’re watching the earnings of various companies, you have probably noticed some companies doing very well (Caterpillar) and others doing poorly (Netflix).  While the specifics of each company have a great deal to do with their performance, the expanding money supply greatly influences their results too.  Austrian Business Cycle Theory describes how the capital structure responds to money printing.  The lower interest rates cause investment and expansion to begin first in the parts of the economy where it takes a longer time to earn profits, such as home building, heavy equipment manufacturing, mining and other capital intensive projects.  Consumer products tend to respond later in the boom phase.  Keep watching the companies that report earnings.  Those doing well are in capital goods production.  You’ll probably notice housing construction pick up too.  This is additional confirmation that the bubble-boom is beginning again.

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