For Wednesday, November 30, the market forecast is for growth

If you choose to invest now we recommend any leveraged ETF that grows with the US market, but please read our comments below before investing.

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 barely changed on Tuesday, closing up only 0.2% on volume barely higher than Monday but still below the 30-day moving average volume.  Our forecast remains for growth with the S&P 500 above our stop-loss trigger by about 22 points.  Should the S&P 500 drop 22 points (1.8%) on Wednesday, our forecast would likely change to uncertain.

Subjective Comment:

The light S&P 500 volume on Monday and Tuesday provides continued reason to be cautious of our forecast’s return to growth.  The large up-day on Monday flipped our forecast.  The large volatility US markets have been exhibiting for nearly 5 months means a drop of 1.8% or more tomorrow is indeed likely.  We would like to see the market move up on very strong volume, well above the 30-day moving average.  This would be an indication of strength.  While there does appear to be signs of strength in the US economy, there are also signs of weakness.  US bank and financial stocks did poorly on TuesdayRating agencies continue to downgrade global banks.  The bounce up in markets on Monday still does not look like a strong beginning of an up-trend.

We wish to emphasize again the strength of the Austrian Business Cycle Theory (ABCT) in explaining the boom-bust cycle in markets and the economy.  Money printing by central banks (aka quantitative easing) and the fractional reserve money multiplier are the sources of money supply inflation in our economies.  This means we need to watch the central banks and the money supply statistics for an indication of what will happen.  Money supply updates from the European Central Bank tell an interesting story.  Every week since August the ECB has been purchasing Italian and Spanish bonds to bailout those governments, although the purchases have been just enough to keep things afloat and not enough to ignite a bubble-boom.  Additionally, the have been sterilization the purchases.  This means they have sold as much or more assets in order to fund the purchase of the bonds, resulting in no new money creation for the Eurozone.  This past week the ECB purchased €203.5 Billion Euros of bonds but only raised €194.2 Billion via asset sterilization.  This is the first time since August the ECB failed to fully sterilize by a gap of €9.3 Billion Euros.  Strictly speaking, the ECB printed €9.3 Billion Euros last week as part of this program.  Some analysts see this as signaling a change and speculate the ECB will begin printing Euros rapidly.  They argue the ECB has been performing a stealth-monetization by lending money to European banks.  Other analysts acknowledge the €9.3 Billion Euros of newly created money but in context this is very small compared to the net €773.2 Billion Euros this same program removed from the Eurozone over the past 17 weeks.  The broad Euro supply measures (M1, M2 and M3) published November 28th show slow growth that has not increased in months.  Several weeks ago we speculated the new ECB President, Mario Draghi, would initiate money printing.  He did lower interest rates, but the money supply growth remains very low.  ABCT predicts the Eurozone capital structure can’t be sustained without additional money printing.  Capital malinvestments have accumulated and must be liquidated with a crash and recession.  We expect the Eurozone will be getting much worse with commensurate spillover effects on US markets.

US money supply statistics from the Federal Reserve show M2 (seasonally adjusted) growing slowly around 5% (annualized) for the past year, with the exception of this past summer where the growth was 32% (annualized) for about 2 months.  The growth was from a bust of bank lending that added almost $500 Billion to the US economy during this burst.  This rapid expansion of money ignited malinvestments in the US which are ultimately unsustainable, but in the short run lift business results and economic indicators.  If the US money supply remains at the present 5% growth rate, this bubble-boom will be short.  On Tuesday several members of the Fed’s Open Market Committee (FOMC) gave speeches.  Comments by FOMC members are often watched for signals of what the Fed might do next.  The different officials gave conflicting statements.  Dennis Lockhart, President of the Atlanta Fed gave statements opposing additional money printing by the Fed, but he does not have a vote on the FOMC until next year.  Vice Chair Janet Yellen spoke in San Francisco and said there is a strong case for additional money printing.  In the past, Janet Yellen’s comments have been more reflective of the majority of the Fed and the decisions ultimately made by the FOMC under Chairman Bernanke’s leadership.  It appears the FOMC is frustrated with US banks for not continuing the pace of lending from this past summer and is considering launching QE3 next quarter to print another $500 Billion Dollars to purchase Mortgage Backed Securities.  If true, this would send US markets up strongly.

So far US markets appear to remain stuck between the weakening upward force from the $500 Billion burst from this past summer and the intensifying Eurozone crisis.  We predict continued high volatility in the near future.  So far the S&P 500 daily market data has not shown patterns that predict strong growth.  What ECB and Fed officials might do is speculation, and rumors are not always reliable.  We will continue to watch the market data and money supply statistics for signals of when to invest.  Our automated forecast system is for growth, but we are subjectively very cautious.  You must decide for yourself when to invest.  We recommend waiting another day to see what the market does.  The next money supply update from the Fed will be published Thursday afternoon.

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