For Thursday, January 26, 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 Wednesday’s trading session up 0.9% on volume above Tuesday and stronger than the 30-day moving average volume.  The S&P 500 would have to decline about 21 points (1.6%) on Thursday to change our forecast to uncertain.

Subjective Comment:

US markets were down in the morning until the Federal Reserve’s FOMC announcement was published at 12:30 PM (Eastern).  After the announcement markets rallied to close the day in positive territory.  Strong volume on up-days are bullish indicators, so Wednesday’s data reinforces our opinion the market is showing strength.  Still, the volume was not exceptionally strong.  We have not seen a very strong volume day to confirm a market rally.  A lot of investors are waiting and evaluating the situation.

The FOMC said they will now continue their exceptionally low interest rates at least through late 2014, whereas before their intention was to maintain the current low rates through mid-2013.  This does not mean much as they can always change their mind.  The rest of the statement simply expressed their intention to continue other policies already in place.

We have recently become more bullish in our subjective analysis of the US economy and stock market largely due to the recent up-tick in the US M2 money supply.  Tomorrow we will have another data point to further evaluate the recent money supply trend.  The Fed will also publish a bi-weekly update to US bank reserves.  This will be the first opportunity to evaluate bank reserves in conjunction with the money supply up-tick.  Today at the Daily Reckoning there was a good analysis of the Federal Reserve’s dollar swap program with Europe.  This is the lending program that started in early December as a means of providing loans to bailout Europe.  The timing of the Fed loans to the European Central Bank were, in our opinion, a bridge until the ECB could initiate its LTRO program.  The article at the Daily Reckoning explains how Dollar Swaps work as loans.  Those loans cause the US M2 money supply to grow, and it is possible some of the Dollar Swap funding from early December has finally shown up in the early January M2 statistics.  The time lag between Dollar Swap loans to other countries and US M2 growth depends on lots of variables, such as the desire of foreigners to either hold the Dollars or trade them back into the US economy for other goods and services.  Looking at the relative magnitude of the Dollar Swaps and M2 growth, it is certainly a potential source of the up-tick in M2 we have been discussing.  This will be considered as we continue to watch M2 growth.  We still think the burst of US bank lending last summer will continue stimulating the US economy and stock market for several weeks to a few months, so investing for growth now makes sense.  If the more recent US M2 up-tick turns out to be a blip from the Dollar Swaps without a sustained acceleration in money supply growth, the duration of the current market and economic up-turn will be limited.

Politically it is very likely the Federal Reserve will do everything it can to foster economic growth.  It is an election year, so there will be pressure to see the economy improve.  The Fed has been discussed by several of the Republican Presidential candidates, so there is more attention on their activities.  The voting makeup of the FOMC is also more likely to support accommodative monetary policies compared to the members who lost their vote in the normal rotation at the end of the year.  International risks remain with Iran as a possible flash point of instability along with the on-going debt crisis in Europe and pending economic crash in China.  Any event that puts downward pressure on the US economy (and stock markets) will likely be met by the FOMC with more easy credit and possibly even Quantitative Easing.  The US economy really needs to shed the nonproductive mal-investments that have accrued before healthy growth can resume.  The Federal Reserve has pumped so much new money into the economy that a bubble-boom is what we will get instead, along with price inflation and eventually another economic crash.  In the long run it would be better to endure a short and painful recession now with the necessary bankruptcies so our economy can redirect resources where they are truly needed.  Our politicians and bureaucrats will not let this happen.  Invest to take advantage of the bubble-boom as long as it lasts.  Our market forecast and subjective analysis will help you know when to avoid the next crash.  Continued caution will likely cost you in purchasing power as price inflation will diminish Dollar-wealth.  Leveraged index investing with our forecast offers one strategy to stay ahead of price inflation.

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