For Wednesday, February 29, 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 0.3% on Tuesday with volume below Monday and lighter than the 30-day moving average volume.  If the S&P 500 drops around 4 points (-0.3%) on Wednesday our forecast could change to an uncertain trend.

Subjective Comment:

The Dow closed above 13,000 on Monday.  By reaching an index value of 1372 the S&P 500 climbed to multiyear high last seen in June of 2008.  The daily S&P 500 data continues to show a bullish growth trend with no indications of developing weakness, although it would be better to see growth on stronger volume.

There was some weak economic news today in the durable goods ordersInside the details of this report are mixed signals of strength and weakness.  The headline comes from the first paragraph reporting new orders for manufactured durable goods decreased 4% in January.  Other items showed an increase, such as unfilled orders (+0.5%), shipments (+0.4%), and inventories (+0.7%).  The largest drop in new orders came from nondefense aircraft and parts which declined -19%.  The capital goods sector is where bubble-booms start in response to monetary expansion and lower interest rates.  We have noted several times the burst of US bank lending in June and July of last summer (2011) followed by a return to the lower M2 money supply growth rate.  If the M2 growth rate remaining in the 4% to 5% range since August is starting to slow the bubble, the capital goods sector is where the slowdown will first occur.  In this context, the durable goods order is a little troubling.  If the US money supply continues to grow at the current rate, the summer lending stimulus impact will diminish.  There is still enough new money in the US economy that the US market will continue to grow from here, but we could be seeing the first signs of a slowdown later this spring or summer.

Contrary to the durable goods orders contracting is the increase recently noted in the reserves of the US banking system.  The increase in required reserves indicates US banks have been originating new loans.  The increase in the excess reserves indicates a continued growing hoard of cash by the banks.  The excess reserves are at $1.58 Trillion Dollars.  The last time the excess reserves were this high was June and July of last summer, the same time when US banks were aggressively originating new loans and rapidly growing the M2 money supply.  If this is the level where US banks were last comfortable originating more loans, then perhaps they are about to resume growing the money supply by fractional reserve lending.  We thought they slowed their lending rate back in August when the Eurozone debt crisis got worse.  Conditions in Europe are unlikely to get better, but at least the European banks have more cash thanks to the aggressive lending program by the European Central Bank.  We think it is unlikely additional downward pressure in Europe will have much impact on US markets.  In China a large crash is coming.  It could put some downward pressure on US markets when it occurs, but any such pressure is likely to be short-lived if the US money supply accelerates its growth rate.

The key to watch is the US money supply growth rate.  If it accelerates soon then the bubble-boom underway in the US will persist longer.  If not we could start to see signs of developing weakness.  All of this will continue to drive oil and gasoline prices higher, along with all other prices.  Price inflation is the inevitable consequence of the enormous money printing courtesy of the US Federal Reserve.  Continue to invest using leverage index funds and prepare for serious price inflation.

Happy Leap Day!

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