For Thursday, March 1, 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 dropped 0.5% on Wednesday with volume above Tuesday and above the 30-day moving average volume.  Our forecast remains for a growth-trend but the stop loss algorithm was almost triggered.  A subroutine to prevent spurious forecast changes was invoked to preserve the growth trend forecast.  A slight S&P 500 decline on Thursday, perhaps as little as 2 points, could be enough to change our forecast to an uncertain trend. 

Subjective Comment:

Wednesday US markets moved down on strong volume.  One strong-volume down-day does not signify anything.  Should several such strong-volume down-days occur in a short period, then a pattern that predicts weakness and possible decline could form.  It is not unusual for one such day to occur during an up-trend.  No action is warranted yet, but it is now very important to continue to watch daily for possible pattern development.

The testimony of Federal Reserve Chairman Ben Bernanke to Congress on Wednesday created a reaction in US markets.  The powerful few people on the Federal Open Markets Committee have a great deal of influence over the US economy via their manipulation of the money supply, and so some attention must be paid to them.  However, they either do not understand Austrian Economics and the Austrian Business Cycle Theory, or they chose to use it for the benefit of the banks.  Either way their public comments are less important than following the money supply growth rate.  Tomorrow is the next weekly update.

The European Central Bank loaned €530 Billion Euros to 800 European Banks with their 2nd 3-year, 1% LTRO operation on Wednesday.  This was the headline number.  The net increase to the Euro money supply was €311 Billion.  We think most of this money will be hoarded by European banks and only used to continue rolling over the sovereign debt of Eurozone members, possibly even Greece but that is not certain.  The first LTRO added a net of €211 Billion Euros to the Eurozone money supply with fewer banks participating, so this LTRO added more.  With €477 Billion Euros in the ECB Deposit facility as of a few days ago, European banks now have €788 Billion of reserves immediately available to lend or hoard as they see fit.  The crisis in Greece and fear of contagion is probably motivating holding this cash until at least after March 20th when the next Greek bonds must be paid to avoid default.  About €148 Billion of European sovereign bonds must be refinanced in March, including €17.5 Billion by Greece.  There are plenty of excess reserves to fund all of this, including the ongoing bailout of Greece.  What is uncertain is if the political will exists to bailout Greece again.  The ECB has provided the liquidity necessary to kick the can down the road if the politicians and bankers choose to kick it.  Whatever they choose to do, we’re pretty sure they will dither until very near the March 20th deadline.  The headlines until then could cause some volatility in US markets.

We recommend holding your current positions.  Our forecast is close to switching to an uncertain trend.  If the S&P 500 declines on Thursday on light volume, we will likely advise continued holding even if the forecast changes.  A strong-volume down-day would be a different consideration tomorrow as it would be the second in a row.  We’ll also have a look at the US money supply growth rates to evaluate next steps after the market closes.  Please be sure to visit tomorrow for our forecast update and commentary.