For Wednesday, January 25, 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 was down most of Tuesday and then rallied to close down a small 0.1%.  Volume was above the 30-day moving average but below Monday’s volume.  On Wednesday the S&P 500 would have to decline about 13 points (1%) to change our forecast to uncertain.

Subjective Comment:

The market finally had a slight decline for the day, but the lighter volume versus Monday and the very small decline in the index leaves the overall trend more bullish than negative.  Over the past many weeks the light volume compared to historic norms continues to suggest there is a lot of cash sitting on the sidelines.  We also know by the swelling US M2 money supply and excess reserves in the US banking system that there is indeed cash that could quickly drive US markets up if investors decide to move aggressively.

The Federal Reserve’s Open Market Committee (FOMC) began their periodic meeting today.  It is worth remembering the rotation has changed the makeup of the voting members.  The members who now have votes are considered more likely to approve more accommodative monetary policies than those who lost their votes for this year.  In other words, the FOMC is more likely to print money or otherwise encourage US banks to grow the US money supply via fractional reserve lending.  The FOMC announcement is at 12:30 PM Eastern on Wednesday (1/25/12).  The FOMC is a group of political bureaucrats with faulty economic theories guiding them, so anything is possible.  We think the most likely outcome is no significant change in policy, with a chance they could do something to encourage a faster growth rate of the money supply.

The bubble-boom in the US economy continues to show itself.  Apple reported their quarterly earnings, and they did exceptionally well beating both revenue and net income estimates.  These up-side surprises are typical as the money supply expands, as predicted by Austrian Business Cycle Theory (ABCT).  Inflation first ignites growth in capital goods and then growth moves through the capital structure of the economy to consumer goods.  Since Apple produces consumer goods their earnings news is evidence the bubble-boom has now moved through more of the US economy as consumers are spending.  Those unemployed are not spending, but someone is buying Apple’s consumer goods, and it has to be people who are earning more and feel they can afford to purchase.  This is what an inflating money supply does, but only so long as the growth rate remains above where it has been.  The summer burst of lending that accelerated the US M2 growth rate will eventually lose its punch, but we think the Fed will do what is necessary to encourage more US bank lending.  If the Fed does nothing on Wednesday they will eventually take action if the economy begins to slow.  Remember, the consequence of an expanding money supply is eventual price inflation.

The Eurozone debt crisis drama is back in the news.  Greece is nearing the eventual default on their bonds and leaders of other countries want the a large rescue fund to continue bailing out Italy, Spain, Portugal and Ireland.  At this point it is probable Greece will receive no further bailouts and bond holders will take a haircut.  The European Central Bank’s 3-year, 1% LTRO continues to be enough to support sovereign bond markets but not enough to encourage European banks to resume lending.  ABCT explains that an economy that has inflated its money supply will crash when the money growth slows.  This is exactly the situation across the Eurozone.  The ECB’s efforts have greatly expanded their balance sheet, but European banks are not lending, so the Euro money supply is not growing fast enough to reignite a bubble-boom.  Expect continued bankruptcies in Europe, such as PetroPlus, the largest European refiner of petroleum products.

Tuesday’s market in the US was a buying opportunity.  With the FOMC announcement scheduled for 12:30 PM Eastern, we expect market action to be light with little price movement until the announcement is made.  If you’re still feeling cautious, then wait until after the next money supply update is available Thursday evening.  If you’re feeling aggressive, then consider investing tomorrow morning before the FOMC announcement.

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