For Thursday, February 23, 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

NASDAQ 100

Russell 2000

S&P 500

QLD

UWM

SSO

3-Times Leveraged ETFs

NASDAQ 100

Russell 2000

S&P 500

TQQQ

URTY

UPRO

Technical Comment:

The S&P 500 declined on Wednesday by 0.33% on volume below Tuesday and below the 30-day moving average volume.  If the S&P 500 drops about 10 points (-0.7%) on Thursday our forecast could change to an uncertain trend.

Subjective Comment:

The US market (S&P 500) daily data is not showing signs of weakness.  The decline on Wednesday is common variability during the growth trend.  The fact the index declined on lighter volume is an indicator the decline was weak.  Last week there were two strong-volume down days, but they were followed by stronger-volume up-days.  The two trading sessions this week have been flat and down on shrinking volume.  These most recent days are consistent with a growth trend.  None of this forms a pattern that predicts future market direction, but we are comfortable with the forecast of continued growth in the current trend.  The daily market data supports this conclusion, and so does the subjective analysis based on Austrian Business Cycle Theory.

Regular readers will recall we have been posting frequently about the coming price inflation.  The recent headlines regarding oil prices are capturing attention.  Some politicians have rolled out common election-year comments blaming speculators for price inflation.  Price inflation is caused by expanding the money supply.  The US money supply, along with the Chinese and European money supplies, has been expanding tremendously over the past several years.  Price inflation has lagged the increase in the money, but price inflation is coming.  The expanding money supply is also why the US economy and stock markets are currently experiencing another bubble-boom.  China and Europe are still struggling with the crash phase of the business cycle, and price inflation is very bad in China

In the US most of the money supply growth has resulted in US banks hoarding excess reserves.  Those excess reserves are now $1.5 Trillion Dollars.  The hoarding by banks resulted in a steady growth rate of the US money supply (M2) around 5% annually for just over the past 1.5 years.  The exception was a much higher growth rate in June and July of 2011 when bank lending accelerated and then suddenly slowed in August.  This burst of lending added around $470 Billion to the money supply in just 8 to 9 weeks.  This rapid burst triggered the current bubble-boom exactly as described by Austrian Business Cycle Theory.  It appears the bubble-boom will continue a while longer from here.  We recommend investing in leveraged index funds (listed above) as part of your strategy.  This will grow your portfolio faster than the rate of price inflation.  Price inflation is coming.  For more insight on bank bailouts and how they will be price inflationary, we recommend this article published on Wednesday (2/22/12) at mises.org.

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