For Friday, February 24, 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 increased 0.4% on Thursday with volume above Wednesday but below the 30-day moving average volume.  If the S&P 500 drops about 11 points (-0.7%) on Friday our forecast could change to an uncertain trend.

Subjective Comment:

The daily market data continues its up-trend.  Volume on Thursday was higher than Wednesday, so the positive pattern of continued growth on increasing (stronger) volume is still present.  The daily market data has not formed any predictive patterns, but the continuing up-trend without negative signals is positive and supports the conclusion that continued growth is likely.

The weekly US money supply data was published today.  The growth trend continues without any change since August, which is currently 4.7% annualized for M2, Seasonally Adjusted, and 7.1% annualized for M2, Not Seasonally Adjusted.  TheM2 growth rates during June and July last summer was in the low 20% for both SA and NSA.  This growth has been sufficient to ignite another bubble-boom in the US economy and stock market.  It is also the cause of increasing oil pricesEconomic indicators continue to reflect the increase in economic activity.  Austrian Business Cycle Theory explains the cause (money printing) and effect (bubble-boom).  ABCT also explains how and why every bubble-boom must eventually end.  If US banks continue to expand the money supply at the current rate we think the current bubble will be short lived.  How short is difficult to predict, but we do not see signs of weakness yet.  Required reserves continue to grow at the same trend, which means US bank lending is not accelerating.  This is consistent with the steady trend in the US money supply growth.  We have also seen a resumption of growth in excess reserves.  The growth in excess reserves in the US banking system has to be coming from somewhere and the rate of growth suggests it is not solely from the Federal Reserve’s ongoing open market operations.  Our best guess is US dollars that have been outside the US banking system are returning as other countries are more worried the value of Dollars will decline.  This worry is well founded.  Declining Dollar values is the same thing as price inflation.  As excess reserves continue to grow, at some point US banks will resume more rapid lending which will cause acceleration in the money supply growth rate.  If this happens, which we expect, then the current bubble will last much longer.  It also means price inflation will be much higher.

Our recommendation remains the same.  We encourage you to invest your portfolio to take advantage of the growth in US markets and to protect yourself from the coming price inflation.  Investing in commodities is one way to hedge against inflation.  Be sure you’re familiar with those markets if you choose to invest part of your portfolio there.  As far as US equity markets are concerned, we strongly encourage you to invest in the leveraged ETF index funds listed above.  The leverage helps grow your investments faster than the rate of price inflation.  Keep checking our daily forecast as it is the earliest indicator of a trend change we can provide.  As long as a growth trend continues to be the forecast, there is an opportunity to grow your portfolio.

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