For Monday, Nov 07, 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:

Friday the S&P 500 closed down 0.6% on light volume.  Volume was below Thursday’s volume and much below the 30-day moving average volume.  Monday the S&P 500 would have to decline about 37 points (2.9%) to trigger the stop-loss algorithm within our automated forecast.

Subjective Comment:

Market data patterns that predict downward motion result after several down-days with higher volume.  Friday appears to be a common one-day decline similar to those frequently occur during bull market up-trends.  For the week the S&P 500 was down but overall there are no technical patterns developing that predict a downward trend.

The Eurozone continues to struggle.  Several countries (Portugal, Ireland, Italy, Greece and Spain primarily) have too much debt.  The bondholders of that debt include many European banks in Germany and France.  If the countries default, the banks go bankrupt.  To avoid bankruptcy of their banks, Germany and France want to give money to the debtor nations so they can keep making payments as they come due.  This has been a series of short-term bailout that only buys a few weeks or months until the next payment comes due.  The debtor nations have failed to implement spending cuts to enable payment without bailouts.  The weakening economies have also reduced tax revenues to the debtor nations, making the problem worse.  Politicians and bureaucrats think if they can just bailout these countries long enough, eventually the economy will turn around and everything will be fine.  The problem is where will the bailout funds come from?  Announcing a one trillion Euro bailout facility bolstered the markets for a few days, but then everyone realized the bailout facility had no funds.  The most recent drama was a deal to write-down Greek debt by 50%.  What is needed is a write-down of the debt of all these debtor nations and to allow those banks to fail.  It will not be the end of the world nor the Eurozone economy, but it will end several banks.  The politicians are fighting to prevent this because the bankers have been very generous with campaign donations.  The politicians have to find a way to stick the taxpayers with the bill without raising too much anger among the voters.

The reason no money can be found to fund on-going bailouts is because no one is foolish enough to lend.  Politicians are looking everywhere for buyers, but they’re not having any luck.  The last resort will be for the European Central Bank to print Euros and buy the bonds to keep the bailouts funded.  This is very likely what will happen, and probably by late December or early January.  This past week the ECB got a new president, Mr. Mario Draghi.  He immediately called an emergency meeting and lowered interest rates.  In other words, he has turned on the virtual printing presses to create more Euros.  The out-going ECB President, Jean-Claude Trichet, had tightened the Euro supply and refused to lower interest rates for the past several months.  Austrian Business Cycle Theory explains how printing money causes a bubble-boom in the economy and stock market, followed by the bust when the money printing slows or stops.  The Eurozone has entered the bust phase of the business cycle and will have a recession for some time to come.  It will take a while for newly printed Euros to turn things around.  The ECB will have to print much more to initiate another bubble-boom.

The spill-over from Europe has been causing large swings in US markets.  In the past three years the Federal Reserve has added an enormous amount of Dollars to the US money supply.  Most of this money wound up as excess reserves and just sat in US banks.  Only recently, within the last few months, have US banks begun loaning out these reserves.  This causes the money supply to grow rapidly via the fractional-reserve money multiplier.  Money supply and bank reserve data from the Fed confirm the growth rate of Dollars has been enormous during the 3rd quarter.  Growth slowed a little in October, but the new money and on-going bank lending is the same thing as running the printing press.  The bubble-boom phase this creates has begun.  The US economy and stock market are going to expand and grow.  How much and for how long is not clear.  The consequences of all this monetary expansion will be serious price inflation for the US, and that could restrict the duration and magnitude of this bubble-boom.

Right now is the time to invest!  We recommend leveraged index funds to help you outpace inflation.  Continue to monitor technical forecasts like our daily updates, and keep watching the growth of the money supply.  The market will continue to grow until the money growth slows or stops.  There is usually a lag of weeks or a few months before the market turns after money growth slows.  Slowing money growth is the early indicator of the end of the bubble-boom.  Our forecasting system then picks up on the patterns in the market data as the top nears.  If you choose to invest in US markets, make sure you have a system to know when to divest to avoid the eventual crash that follows every bubble-boom.

One final note about the very short term.  The Chicago Mercantile Exchange (CME) announced late Friday they are increasing their margin requirements across the board.  This means there will be many commodity investors who must deposit cash in their trading accounts by close-of-business on Monday.  This could force a lot of selling to raise the necessary cash, especially the sale of commodities.  Oil, gold and other commodities could decline sharply on Monday, and this could spill-over to stocks too.  If you’re looking for a good entry point for taking advantage of the bull rally we are forecasting, Monday may be a great opportunity.  If there is a large drop on Monday, it’s probably from the CME margin change.  Consider this a sale and place your buy orders around early to mid-afternoon on Monday.  Please understand this last paragraph is highly speculative on our part and not necessarily our area of expertise.  We are much more confident about our comments regarding the larger macroeconomic picture and the longer term trend of the US stock market.

Comments are closed.