For Tuesday, February 21, 2012, the market forecast is a growth-trend

We recommend any leveraged Exchange Traded Fund (ETF) that grows with the US market.  Here are some options:

2-Times Leveraged ETFs


Russell 2000

S&P 500




3-Times Leveraged ETFs


Russell 2000

S&P 500




Technical Comment:

The S&P 500 index increased 0.2% on Friday with volume below Thursday and below the 30-day moving average volume.  The S&P 500 would have to decline about 1.4% (18 points) on Tuesday for our forecast to change to an uncertain-trend.  US markets are closed on Monday, February 20th in observance of Presidents Day.

Subjective Comment:

US markets on Friday had mixed direction in the index values and light volume.  Over the past few trading sessions signs of both strength and weakness have developed, but there is not yet any definitive pattern to predict the future direction of the market.  While the S&P 500 index has hit a 9-month high, it’s also worth noting the S&P 500 moving average volume just climbed above 4 billion shares per day.  It was last above 4 billion shares per day on December 14th as volume was continuing to decline.  The average volume bottomed out on January 5th slightly above 3.6 billion shares per day and has been rising since.  The increasing average volume combined with the up-trend in the index is a signal of a strengthening market.  We conclude US markets will continue to move in an up-trend from here long enough that it makes sense to invest now in leveraged index funds.  Leverage is necessary to stay ahead of price inflation.

There are continuing signs the expanding US money supply is causing a bubble-boom in the economy and price inflation.  The Leading Economic Indicators rose 0.4% in January for the fourth consecutive gain with widespread strength among its components, and December’s value was revised up to 0.5%.  Price inflation measures of CPI and PPI from the Bureau of Labor Statistics are also increasing, including the core CPI and core PPI.  The US Postal Service may raise the price of a stamp to 50 centsGasoline prices are climbing and are much higher than normal for this time of year, and the good news is the warm winter in the US is probably keeping the increase in energy prices from being worse.  We strongly recommend taking steps to hedge against price inflation as it will get much worse.

There will likely be events that cause volatility in US stock markets during the current up-trend.  We’ve mentioned several times in the past that Greece will default on their debt, very likely missing the bond payments coming due on March 20th.  The likelihood of this event is becoming more obvious in the bond markets as Greek 1-year bonds now have a yield of 629%.  That’s not a typo.  We did not forget the decimal point.  Greek 1-year bonds have a yield of 629%!  When the default occurs there are many institutions (insurance companies and banks) that have sold Credit Default Swaps as insurance against default.  Those CDS instruments will cause losses.  The fear is of spreading losses throughout the world financial system.  It is hard to guess how bad this will be as the exposure of the various institutions is unknown.  The best think would be for the failed institutions to suffer the losses and declare bankruptcy, followed by writing off the debt.  It worked in Iceland and it is the responsible thing to do at this point.  If the Greek default will be so bad as to halt and possibly turn US markets to a down-trend, our forecasting process will identify the turning point.  So far the growing average daily market volume and continuing up-trend in the S&P 500 index has yet to turn negative.

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