For Wednesday, January 11, 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:

On Tuesday the S&P 500 index moved up 0.9% to 1,292.08.  Volume was larger than Monday and above the 30-day moving average volume.  Should the S&P 500 decline on Wednesday by about 9 points (0.7%), our forecast could change to uncertain.

Subjective Comment:

The market volume was strong but not unusually high.  By itself Tuesday might not be very interesting technically.  When combined with recent trend data the market action was strongly positive and the market reached a high not seen since the end of July.  While Tuesday is not the first day of a trend in the index, it could be the beginning of a new phase where continued market growth occurs on stronger volume.  As the S&P 500 reaches levels not seen in the past 6 months this will be considered a sign of strength by many participants who follow market charts.  In addition to Tuesday’s market data, there are a few headlines that are also bullish for the US economy.  We’ve mentioned the improving unemployment numbers and surging consumer credit in recent posts.  Today we noted the Wall Street Journal reported strong demand for luxury sport-utility vehicles world-wide including a quote that “Germany’s luxury-car specialists can’t quite believe their own good fortune as strong SUV demand helped them notch record sales in 2011.”  With a hat-tip to EconomicPolicyJournal.com here is context about increasing sales of luxury goods as identified by Ludwig von Mises’ book The Theory of Money and Credit published a century ago:

When the increase of money proceeds by way of issue of currency notes or inconvertible banknotes, at first only certain economic agents benefit and the additional quantity of money only spreads gradually through the whole community. If, for example, there is an issue of paper money in time of war, the new notes will first go into the pockets of the war contractors. As a result, these persons’ demands for certain articles will increase and so also the price and the sale of these articles, but especially in so far as they are luxury articles. [emphasis added]

In the context of money printing this can be interpreted as a symptom of the expansion of an inflationary induced bubble-boom.  However, the time period of the “surprise” was record sales in 2011 where there was a huge increase in the US M2 money supply during the months of June and July.  The annualized growth these two months was just under 33%.  Since then the US money supply has been expanding at a much slower annualized rate of 4.2%.  For a bubble-boom to be sustained, the growth rate of the money supply must be maintained and even accelerated so the “surprise” in profits continues.  Absent the sustained high levels of money printing, Austrian Business Cycle Theory explains why the artificial bubble-boom must pop.  We continue to be concerned the recent up-trend in the US economy and stock markets could abruptly end.  Tuesday’s market data might be the beginning of stronger growth, but we still advise caution before radically changing your investment positions.

In contrast to this bullish market action we noted a few news items of international financial concern.  The Eurozone debt crisis shows no clear signs of abating.  In fact, the European Central Bank deposit facility has reached another record high level of €482 billion.  This is €217 billion higher than the level back on December 21st when the 3-year 1% LTRO loans added a net of €211 billion to the Eurozone banking sector.  In other words, all the money loaned by the ECB has now been deposited back with the ECB.  Clearly the Eurozone banks are very concerned about losses and are hoarding their cash as a safety contingency.  Considering the recent 50% drop in the stock price of UniCredit (large Italian bank), it seems Europe is on the verge of another recession and possible bank failures.  (Hat tip ZeroHedge.com.)  Remember Greece?  In the past 2 years the customers of Greek banks have withdrawn €233 billion from Greek banks.  This is a slow-motion bank run with no signs of stopping.

Outside of Europe we noted these frightening tidbits:

Europe, China and Iran all remain capable of creating significant shocks to world economies.  In light of these risks and what has been persistent market uncertainty we are not ready to conclude a strong US market up-trend will continue.  The next money supply update will be published Thursday by the Federal Reserve.

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