For Thursday, January 12, 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 Wednesday the S&P 500 was up a tiny fraction, just 0.03%.  Volume was below Tuesday but above the 30-day moving average volume.  Should the S&P 500 decline about 4 points (0.3%) on Thursday our forecast could switch to uncertain based on our stop-loss algorithm.

Subjective Comment:

The S&P 500 index remains at a 5-month high and there have been very few down-days on high volume recently.  This is bullish.  Conversely volume remains low by historic standards and there has not been a large up-day on strong volume recently.  US markets have been creeping up for several weeks without showing serious signs of strength or of weakness.  We continue to think most investable funds are remaining on the sidelines waiting for a clear indication of market direction.  If many investors suddenly turn bullish the market could move up quickly.  Any external shocks or developments that frighten investors could also move the market down quickly.  Other market watchers are noticing the downward trend in the trading volume of US markets.  This light volume trend is one of the reasons we continue to advise caution and recommend checking every day for signs which way US markets will go.  In addition to market risks we have been discussing, it appears the US Federal Government’s debt ceiling could return to the forefront and cause uncertainty in the near term.

It is encouraging to see US markets decoupling from European markets.  This has been the case for several weeks.  This was caused by the burst of summer lending that added $470 Billion Dollars to the US money supply back in June and July of 2011, growing M2 at nearly 33% annualized.  This happened while the European money supply remained at a slow growth rate (<2% annualized).  If the US money supply had continued growing a sustained bubble-boom would be well underway, but the growth fell back to 4.2% since August.  We’re not sure how much longer the Summer burst will keep the US economy and markets growing.  We are sure without an acceleration in the US M2 growth rate the stimulus will wane.  We’re also sure that price inflation will result from all the US money printing.  The risk of further recessions in the Eurozone remain significant.  The European Central Bank’s LTRO program has resulted in European Banks hoarding cash instead of growing the Euro Money Supply.  Today an article on Bloomberg.com covered these details as we have outlined previously.

Yesterday we mentioned possible hyperinflation in Iran.  Today there was a report that Iranian interest rates have been raised to 20% to fight the problems.  We don’t know if 20% will be enough because we don’t know at what rate the Iranian government is expanding its money supply.  There was also news that an Iranian nuclear scientist was killed.  Tensions remain high.  Geopolitical problems in the middle east, especially with Iran, could shock oil prices higher.  In turn this would have a dampening effect on all world economies.

While the US has the summer lending burst working itself through the economy, China enjoys no such similar situation.  We have commented China is facing a massive economic contraction as a result of their rapid money printing in the past that has slowed in recent months.  China has not resumed printing money at a sufficient rate to avoid the depression that always results after inflating the money supply.  More and more analysts are predicting a hard landing in China.  Despite Chinese official propaganda that everything is fine, it is not.  Some interesting news from China includes a report of about 150 workers threatening to commit mass suicide unless working conditions are improved.  Another factoid is that since China’s central bank began its current market regulation methods back in 1997, not a single Chinese company has defaulted on its domestic debt until yesterday when a fiber maker missed a 397mm Yuan loan payment.

Tomorrow we will report on the updated US money supply numbers.  With the lag in the reporting time frame there might not be anything new compared to recent trends.  Our automatic forecast has been tracking the recent up-trend in the S&P 500 index and we are nearing a possible shift in the forecast to uncertain.  If you have a long position, continue to hold it for now.  If you have a risk-off position, continue to wait before investing.  If the S&P 500 drops sharply tomorrow, greater than about 4 points, we expect our forecast to change.

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