For Friday, December 2, the market forecast is for growth

If you choose to invest now 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 barely changed on Thursday, closing down 0.2% on volume lighter than Wednesday and below the 30-day moving average volume.  The S&P 500 would have to drop about 63 points (5.1%) on Friday to trigger the stop-loss safety net in our automated algorithms.

Subjective Comment:

The weekly money supply data from the Federal Reserve was published today.  Nothing in the M2 money supply showed any change from the recent trends.  For the past 16 weeks Seasonally Adjusted M2 has been growing at $9.7 Billion per week, which is slower than the $56.9 Billion per week that added about $500 billion during June and July last summer.  There is always just over a week lag in the publication of the data, so today’s numbers reflect data through November 21st.  If the Fed begins new asset purchases (QE3), or if banks begin lending at a faster pace, there is always this lag in the data.  The recent Dollar Swap rate cut by itself should not increase the US money supply very much.  If it did, data from the Fed to reflect what begins on Monday, December 5th will not be available until December 15th.

As we discussed yesterday, the differing opinions about the Dollar Swap announcement both agree that the reduction in the Dollar Swap price will not be enough to prevent bank and sovereign defaults in Europe.  At best it buys a little more time.  The bullish opinion rests on the belief the European Central Bank will soon begin printing massive amounts of Euros to bailout the over-indebted countries, which in turn bails out European banks.  There was additional evidence to support this hypothesis today from comments by ECB President Mario Draghi to the European Parliament.  EconomicPolicyJournal.com thinks his comments are intended as pressure to persuade politicians to create a stronger European government, and that such strengthening of a Federalized Europe is necessary before the ECB should follow with “other elements”.  Mr. Draghi noted that “sequencing matters”, heavily implying the ECB will not act until the politicians take meaningful action.  The next European summit is in Brussels on December 9th.  This is why some expect announcements on the 9th will include new political agreements that will satisfy the “sequence” Mr. Draghi eluded to.  After that, the thought is the ECB will begin printing.

When the ECB starts massive money printing, the downward pressure Europe has been putting on US markets will ease, allowing US markets to grow.  US banks appear to have reduced their lending rate while waiting on a resolution to the European debt crisis.  When the ECB intervenes with money printing in a meaningful way, we expect US banks will feel safe lending their $1.46 Trillion of excess reserves again.  (The excess reserves dropped by about $76 Billion in the last half of November, bringing excess reserves below $1.5 Trillion for the first time since last April.)  As recently as this past summer US banks were lending much more aggressively.  This is why the US M2 money supply was growing at near $57 Billion per week.  When US banks believe the European debt crisis has been solved with Euro printing by the ECB, we expect they will resume the aggressive lending as observed this past summer.  Their fractional reserve lending will in turn grow US M2, probably resuming the rate of $57 Billion per week.

The burst of lending and rapid US M2 growth last summer is why economic indicators are improving now.  This is consistent with Austrian Business Cycle Theory.  Rapidly increasing the growth rate of money printing causes a manipulated economic and stock market boom.  This bubble-boom eventually ends in a bust and crash, but it can last for quite a while.  The duration depends on how long the money printing and bank lending persists and price inflation as the primary factors.  The recent market spikes upward were caused by the anticipation that massive ECB money printing will begin soon, possibly with an announcement Friday next week.  The S&P 500 market data has only begun to show a bullish pattern.  The next several days will either complete the formation of a predictive pattern or not.  Our automated forecast is for growth, and depending on how the market moves tomorrow and next week, our subjective opinion could become quite bullish as well if market patterns and news continue to point to the initiation of Euro printing by the ECB.  It is up to you if you want to invest now or wait a few more days to see what develops.  If massive Euro printing does not begin soon, we think the spike this week will not be sustained and the market will again move down.