For Tuesday, December 13, 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 dropped 1.5% on Monday with volume below Friday and below the 30-day moving average.  If the market had dropped another 9 points our forecast would have changed to uncertain.  If the S&P 500 closes down about 12 points on Tuesday (0.1%), our forecast is likely to change to uncertain.  Intraday lows were below where the market closed and if Monday had closed at the lows our forecast would have changed to uncertain.

Subjective Comment:

The large market drop on light volume show volatility remains high.  With three days now complete since the European summit, market participants have had time to evaluate the news and review announcements of the new political agreement and recent monetary policy of the European Central Bank.  It seems they remain uncertain if the ECB will be printing enough money to keep European banks and the over indebted nations from going bankrupt in the near future.  ECB President Mario Draghi praised the political decisions from the summit, but there was no additional announcement about ECB money printing.

We have speculated the absence of any announcement would cause markets to go down.  We don’t know if markets will continue to go down from here or not, but our guess is high volatility will continue and further downward motion is likely.  If there are market participants with cash to invest who feel Monday’s decline offers a discount prior to a rally, then buying should pick up.  The end of the year is approaching and there are lots of fund managers who want the closing numbers on December 31st to be strong since this will determine their annual performance.  It will take about two weeks before money supply statistics from the US and Europe will update to show if money printing has picked up or not.

The Federal Reserve’s FOMC meets tomorrow.  Speculation regarding resumed quantitative easing has appeared in financial news outlets, but the speculation discusses the possibility of QE3 beginning early next year and not this week.  Most observers are expecting the Fed to keep interest rates unchanged, so it is unlikely the market is anticipating Fed action.  Something else going on at the Fed is an evaluation of regulatory policies in response to the collapse of the MF Global firm.  In short, it appears there is a regulation that can allow a brokerage firm to use customer’s collateral as collateral for their own trades.  This may have contributed to inappropriate use of customer’s segregated accounts as MF Global attempted to avoid bankruptcy.  If the Fed has to change this regulation to restore investor confidence their funds will not be misappropriated by brokers, it could result in deleveraging and subsequent downward pressure on stocks.  If the Fed does not strengthen this regulation, investors could liquidate their brokerage accounts, which would put downward pressure on stocks.  If this turns out to be the case, the Fed will have to quickly figure out which course of regulatory action to take knowing that either choice will affect markets.  Here is a better blog post with more details on this point.

Uncertainty seems to remain the dominate theme, both in subjective sources of information and from the weak market volume.  The S&P 500 is little changed over the past 3 weeks, although there has been a lot of volatility during that time.  In the 3 weeks prior to that the S&P did move up.  Over this past 6 weeks our subjective opinion has moved from a bullish position to a more cautious one.  We thought US money supply was going to continue to grow strongly as it did back in June and July, and that in turn this would fuel a bubble boom in the US economy and stocks.  For the past 17 weeks the Fed’s money supply (data) has shown a resumption of a slower growth that will not sustain a boom for very long.  There are not enough data to show a clear trend yet, but in the past 2 to 6 weeks there are possible indications of further slowing in the growth of the US money supply (M2 seasonally adjusted).  There is nothing in the money supply data or the daily market data that gives a clear picture for us, but there is enough to keep us cautious about investing right now.  While our automated forecast remains for growth we subjectively continue to be cautious.  With the recent collapse of MF Global, perhaps good advice would be to move your investments into multiple accounts at different brokerage firms.

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