For Friday, February 17, 2012, the market forecast is a growth-trend

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 index increased 1.1% on volume above Wednesday and stronger than the 30-day moving average volume.  The S&P 500 would have to decline about 19 points (-1.5%) on Friday to change our forecast to an uncertain trend.

Subjective Comment:

After two consecutive strong-volume down-days on Tuesday and Wednesday, Thursday recorded a strong-volume up-day on the S&P 500 index.  The strong day on Thursday was also a 9-month high for the S&P 500 index.  None of the recent market data creates a definitive pattern of strength or weakness but instead shows conflicting signs of both.  Periods of conflicting signals can occur at market turning points, so now is a critical time to carefully watch the daily patterns to see what will develop.  The most likely cause for the strong up-day on Thursday was the improving employment statistics regarding initial unemployment claims.

The weekly US money supply statistics were published by the Federal Reserve.  The upward trends remain at the same growth rate since last summer.  The Not-Seasonally-Adjusted (NSA) M2 jumped up from last week, reversing a 4-week down trend.  Presently the NSA and SA M2 residual trends show no out-of-control or other statistical anomalies.  This information considered in the context of the Austrian Business Cycle Theory suggests continued risk that the current bubble-boom could fizzle.  However, ABCT does not provide a means of predicting the timing of how long a bubble-boom will last.  US corporations are holding large cash reserves and so are US banks.  This propensity to hold large cash balances is what has prevented the massive increase in the US money supply over the past 3 years from causing more serious price inflation than what already exists.  Price inflation is coming and it will be very serious, and it will affect many countries as almost every central bank has been printing money.  When people decide to stop holding this cash and begin using it, price inflation will get very serious.

We remain cautiously optimistic the current growth trend in US markets will continue and recommend investing in leveraged index funds to stay ahead of price inflation.  We think the rapid expansion of the US money supply in June and July of last year (2011) will continue to sustain the improving economic conditions and US stock market expansion.  The FOMC minutes released from the Federal Reserve suggest the board of governors are seriously considering more Quantitative Easing.  Should any external events, such as the Greek default that will most likely occur on or before March 20th, or possibly the escalation of hostilities between Israel, the United States and Iran, we think the FOMC will react by initiating QE3.  External risks will cause turbulence in US markets, but the true threat to the current growth-trend is the growth rate of the US money supply.  If the current US M2 growth trend remains where it is the bubble will pop sooner than later.  All things considered, it is our best judgment the eventual burst of the current bubble remains far enough into the future that investing in US equity markets now still makes sense.

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