For Friday, January 6, 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 moved up again on Thursday by 0.3% on volume higher than Wednesday and above the 30-day moving average volume.  If the S&P 500 drops about 15 points (1.4%) on Friday, our forecast could change to uncertain.

Subjective Comment:

The weekly US money supply data was published by the Federal Reserve.  We analyzed the M2 trends and the money supply continues to grow at an annualized 4.2% (seasonally adjusted) with no indications of a change.  This makes 20 weeks at this rate (8/8/11 – 12/26/11).  US banks have not increased the rate of originating new loans (net of repayments).  They continue to hold their $1.47 Trillion of excess reserves, we think as a contingency against the risk they could lose between $1 Trillion to $3 Trillion Dollars from the Eurozone debt crisis.  If we’re correct, US banks will keep their lending rates low while watching the health of the Eurozone.  European sovereign bond auctions and the European Central Bank deposit facility are a few proxy measures for the health of European banks in addition to news reports.  There were a few interesting news items discussing these topics:

If the ECB prints money (aka monetizes) the funding it is providing via the 3-year 1% LTRO loans, they might be able to delay the multiple bankruptcies that are pending across the European banking system.  If the ECB continues to monetize at the slow pace they have been for the past 2 years then the debt crisis will get worse and probably soon.  We are almost a full month away from the next Euro money supply update, and that will be the December data.  It will be 2 months from now before January Euro M2 and M3 growth rates will be published.  The ECB balance sheet will likely continue to expand, but if that doesn’t translate into European bank lending and growth of the money supply then the necessary bankruptcies will begin with the subsequent contagion losses in the US.  We assume US banks are watching this closely and likely have access to non-public information.  As a result, the Federal Reserve’s more frequent US money supply and banking reserve data will help measure the situation.

Today’s S&P 500 market data is non-remarkable.  The recent up-trend continues, but how long this will last is unclear given the uncertainty surrounding the Eurozone debt crisis.  If you choose to invest now, we recommend investing only a portion of your portfolio and be ready to exit quickly if things turn bad.  For your risk-off holdings, continue to avoid US money market funds as they are exposed to European debt.

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