For Tuesday, January 31, 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 moved down 0.25% on Monday with volume below Friday’s but above the 30-day moving average volume.  The decline in the market did not trigger the stop-loss algorithm in our forecasting process.  Instead a subroutine designed to minimize false signals in the stop-loss logic was invoked causing our forecast to remain at growth.  Should the market continue to decline on Tuesday, by about 7 or more points on the S&P 500, then the stop-loss algorithm could likely change our forecast.

Subjective Comment:

Monday marked three consecutive trading sessions with a decline on the S&P 500.  Volume was above the 30-day moving average, so this mini-down-trend is beginning to show signs of being more than an occasional blip.  Our false-signal-suppression algorithm filters out more false than real signals, but it sometimes can filter out a real signal.  The S&P 500 was down more earlier in the day and climbed near the end of the day.  The market data has not developed a definitive pattern, but what is developing is concerning.

International financial news adds context to the market data.  The Eurozone debt crisis continues with Greece and Portugal as the current areas of concern with more headline focus on Greek debt.  Greece will likely default on bonds maturing March 20th without an additional bailout, and it appears a bailout may not be provided.  There has been much focus on negotiations between Greece and the bondholders on a negotiated restructuring of the debt.  There have also been headlines discussing Greece’s exit from the EurozonePrivate debt is being erased by Greek courts which will put further pressure on Greek banks.  The social consequences in Greece are becoming dire with youth emigrating and infants being abandoned.  The unemployment for youth (ages 16 – 24) across the Eurozone is very high.  In this age cohort the unemployment rate in Greece is 46.6% and Portugal is 30.7%.  Spain is even worse at 51.4%.

Banks in Europe and in the US are hoarding massive amounts of cash instead of lending to businesses.  We speculate this cash hoard is a contingency against the expected losses as bankruptcies and bond defaults will spread across Europe.  If this is the case, the continued slow rate of business lending will eventually bankrupt those businesses that invested in long-term projects that cannot be completed in the face of rising prices and contracting credit.  At this point a continued recession in Europe is a certainty.  Update Euro Money Supply Statistics (M2 and M3) are now available for December.  These rates declined to 1.8% and 1.6% from 2.0% and 2.1% in November.  Euro M2 money growth has been between 1.3% and 2.3% since October 2009.  Europe has not yet liquidated all of the mal-investments from the previous boom.  Conditions there are simply not conducive to growth.  For the US economy the recent bubble-boom will progress a while longer, but for how much longer is unclear while the US M2 money supply growth rate remains in the 4% range.  The economic crash in China is also continuing and will likely get worse.

We recommend against increasing your exposure to US markets right now.  As price inflation eventually accelerates bond prices will drop, so we recommend you sell any and all bonds you own.  This includes US treasuries, foreign bonds as well as state and local bonds.  If US markets decline sharply on Tuesday consider moving some of your investments to cash.  With all things considered, if our automated forecast flips to uncertain tomorrow we will be advising moving all your US market holdings to cash.

Comments are closed.