For Wednesday, January 18, the market forecast is for growth

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 closed up 0.4% on volume above Friday’s volume and higher than the 30-day moving average volume.  The S&P 500 would have to decline about 6 points (0.5%) on Wednesday to trigger the stop-loss algorithm and change our forecast to uncertain.

Subjective Comment:

Volume was higher than average and the S&P 500 index was up.  This is bullish behavior, but we should point out the volume was not so much higher as to identify Tuesday as especially noteworthy.  Economies are extremely complex and there is a time lag between changes in monetary inflation rates and the manipulated boom and busts that follow such changes.  US economic data continues to deliver up-side surprises as the US bank lending burst last summer continues to stimulate.  Some of the economic factoids released today include:

More commentators are noticing the up-trend in the US economy.  On Wednesday the Producer’s Price Index will be released.  Based on Austrian Business Cycle Theory (ABCT) the expanding money supply should push producer prices up ahead of consumer price increases.  For this reason we think it is likely PPI will be up.  Consumer Price Index will be released on Thursday.  If CPI is increasing, which is likely, it will probably not be as strong as PPI.  The most important data point to watch this week is the Fed’s money supply statistics on Thursday afternoon.  This will provide a better idea of US banks are originating loans rapidly again like last summer as we speculated was the cause of the recent up-tick in US M2 money supply.

The credit rating downgrades of several European countries last week by Standard & Poor’s is consistent with prior guidance issued by S&P.  The bond markets in Europe continue to improve for sovereign debt with maturities less than 3 years.  Spanish yields on 12 and 18 month debt were 2.049% and 2.399%, a reduction of more than half the yields of the same maturities auctioned back in December.  The credit ratings were not a surprise and will not impact the bond auctions.  The European Central Bank’s 3-year 1% LTRO loans are providing banks the money needed to drive down the sovereign bond yields.  Later this week when bond auctions occur with maturities beyond 3-years we should see much higher yields.  Greece is getting close to finally defaulting as everyone expects.  As the inevitable draws near there are now more predictions on timing with a guess the country will likely default before March 20th and could possibly negotiate a 68% haircut with its creditors.  Greece will probably leave the Eurozone at some point.  For a colorful analysis of the Eurozone, we recommend reading this post by Gonzalo Lira.

Of course there remain risks that could put downward pressure on the market.  We’ve discussed the Eurozone debt crisis briefly above and in previous posts.  China also faces a serious recession.  ABCT explains why a crash in China is inevitable.  Some experts think China could delay their crash if they choose to print money, but this would cause their already serious price inflation to get very bad.  The current ECB LTRO in Europe appears to be only enough to keep sovereign debt from defaulting, except for Greece which everyone has written off at this point.  As long as European banks continue to deposit their funds in the ECB’s deposit facility the Eurozone economy will not recover.  If, as we expect, US banks rapidly originate new loans, the US money supply will grow rapidly.  This will force the US economy and stock markets to decouple from Europe and China and grow.  Aggressive investors should move more of their portfolio into leveraged index funds that track the US market.  Cautious investors should prepare to do the same as soon as this Friday after the US money supply statistics are updated.

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