For Friday, January 20, 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 finished Thursday up 0.5% on volume stronger than Wednesday and above the 30-day moving average volume.  With the continued up-trend in US markets the S&P 500 is now about 29 points (2.1%) above our stop-loss trigger.  A decline of 2.1% on Friday would be necessary to flip our forecast to uncertain.

Subjective Comment:

The market volume on Thursday was the strongest in just over a month.  The continued up-trend in the market on higher volume is more and more bullish.  As the current bullish up-trend continues it is very possible more money will move into the market.  There is certainly plenty of un-invested cash that can and eventually will fuel a continuing boom in US markets.

US Money supply statistics were published today and they contained significant revisions going back at least 18 months.  This is quite common of the Federal Reserve.  The data tables they publish are often revised.  Despite the revision, the jump up in the M2 money supply we discussed last week remains obvious in the data.  At the end of a calendar year these revisions are not uncommon in order to reconcile the seasonal adjustments.  Like we reported last week, the jump in the Money supply for the week ending Jan 2nd remains significant relative to the trends.  Last week the Seasonally Adjusted (SA) jump was 40% annualized growth.  The revised numbers put the same growth higher at 53%.  This data will likely change again next week.

For the most recent data, meaning the week ending Jan 9th, the one week growth rate in the SA M2 was 12% annualized.  The Non-Seasonally Adjusted numbers still have the huge jump for the week ending Jan 2nd, and for the week ending Jan 9th the annualized growth was -1.4% (a decline).  Week-to-week numbers in this data set have variability so a clear trend takes several weeks to develop.  However, what is most relevant is the money supply remained elevated after the jump the week of Jan 2nd.  This confirms the jump was not a blip nor a data error occurring with restatements at the end of the year.  The Non-Seasonally Adjusted US M2 money supply is up over $100 Billion Dollars from December 19th through January 9th.  This is a clear departure from the most recent trend.  The summer lending burst a half-year ago added $363 Billion Dollars in 8 weeks (using the revised data just published).  It remains to be seen what new trend is developing, but based on the most recent 3 weeks the current M2 growth is comparable to the summer burst from last year.

Last summer’s burst of bank lending that caused the explosive growth in US M2 continues to show up in current economic news.  Weekly unemployment new claims dropped to 352k.  While this number will likely be revised upward next week, it is still the fewest new claims in nearly four years.  The S&P 500 is up 4% since the start of the year which is the best start for a calendar year since 1987.  Remember, the growth in the money supply is what is causing the manipulated boom in the US economy and it will cause price inflation.  The headline CPI published today came in at 3.0% with “core” CPI at 2.2%, although other measures of consumer price inflation suggest the rate is perhaps 4.8% to 6.5%.  Price inflation will grow stronger along with the economic boom and rising stock markets.  There will of course be volatility along the way, but the trend will be up.  If the recent acceleration in the M2 growth rate continues, price inflation will eventually be that much more.

We are more bullish on the prospects for the near term up-trend in US equity markets.  We recommend investing in leveraged index funds to grow your wealth faster than inflation and taxes.  The M2 burst from last summer appears to still be fueling upward movement now and it appears more M2 growth is occurring.  If you’re still feeling cautious then at least move some of your investable funds into the market now.  Aggressive investors should be moving all-in with the strategies you like.  We recommend leveraged index funds but are not opposed to other strategies.  When price inflation picks up the Federal Reserve will be forced to allow interest rates to rise, so bonds are a bad investment now.  They will likely hold their value for some time to come, so you have time to liquidate any bond positions you have before they start falling in price.  Europe and China will continue to stagnate and eventually decline and there will be bad news as Greece will default and likely leave the Eurozone soon.  These events can cause downward blips in US markets, but the expanding money supply is overtaking the downward international pressures.  We recommend investing now.  Take advantage of Friday’s trading session and add to your positions.

3 Responses to For Friday, January 20, the market forecast is for growth

  1. Liam says:

    relatively new reader – nice work. Question – when looking at the M2 data – the summer 2011 selloff coincided with M2 growing at a decent clip in the weeks leading up to the 7-22-11 waterfall and the rate increased through the waterfall ending date of 8-8-11. I can understand why M2 would be pushed higher as market falls (Fed trying to prop things up) but what explains the higher M2 preceeding the waterfall? Obviously trying to figure out M2 growth now and potential for another waterfall type event. Thank you

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