For Tuesday, March 6, 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 index declined 0.4% on Monday with volume above Friday but below the 30-day moving average volume.  If the S&P 500 declines about 2 points or more on Tuesday our forecast could change to an uncertain trend.

Subjective Comment:

The US stock market decline on Monday was on light volume, but higher than Friday’s volume.  This qualifies as a high-volume down-day and is the second such day in the past four trading sessions.  A pattern predicting weakness has not formed, but should this type of high-volume downward action persist for several days, such a predictive pattern could form.  The stop-loss algorithm in our forecast is very close to being triggered.  Continued declines from here are very likely to change our forecast to an uncertain-trend based on the stop-loss logic of our processes.

Many market participants have figured out there is a connection between the actions of the US Federal Reserve and the performance of US stock markets.  The phrase “don’t fight the Fed” is anecdotal evidence of this awareness.  We would wager this understanding is superficial among most market participants.  The detailed understanding of the connection is explained by Austrian Business Cycle Theory.  Last week Fed chairman Bernanke gave his biannual update to congress and there was no hint of additional Quantitative Easing.  Today Richard W. Fisher, President of the Dallas Federal Reserve Bank, gave remarks to the Dallas Regional Chamber of Commerce.  In these remarks he commented on the market’s desire for more QE and spoke against it, referencing “Trillions of dollars… lying fallow, not being employed in the real economy.”  He was referencing $2 Trillion of cash owned by nonfinancial businesses and the $1.58 Trillion in excess reserves in the US banking system.  We are grateful the Fed has chosen to refrain from additional QE, but we are highly critical of QE1 and QE2 that created those excess reserves.  All of this modern money creation has recklessly ignited another bubble-boom and will bring the serious price inflation we have written about nearly every day for many weeks.  When US banks choose to resume lending the current bubble will accelerate, driving the prices of everything upward.  Stock prices move up earlier than consumer prices during bubble-booms.  This is why we have been advising investing in leveraged index funds now.

To the extent comments from Fed officials spook less sophisticated market participants, of which there are many, some short-term weakness can and likely will develop in US stock markets.  The Eurozone debt crisis and accelerating oil and gasoline prices will also cause anxiety among participants.  We have also noticed intensifying rhetoric from multiple political sources seeking to spin any statistic to advance their agendas and secure the election or reelection of their preferred candidates.  There will continue to be a lot of confusing and conflicting data and interpretation by those who subscribe to the economic dogmas of the Keynesians and monetarists.  The current bubble will continue until the growth rate of the money supply can no longer sustain it.  This is why we focus on this topic and encourage our readers to learn more about Austrian Economics.