For Friday, March 9, 2012, the market forecast is a growth-trend

We recommend any leveraged Exchange Traded Fund (ETF) that grows with the US market, but please read our comments below before investing.

2-Times Leveraged ETFs


Russell 2000

S&P 500




3-Times Leveraged ETFs


Russell 2000

S&P 500




Technical Comment:

The S&P 500 index rose 1.0% on Thursday on volume below Wednesday and lighter than the 30-day moving average volume.  The advance in the index was sufficient to un-trigger the stop-loss algorithm of our automated forecast, returning it to the growth-trend.  If the S&P 500 declines about 8 points (-0.6%) on Friday the stop-loss algorithm could be triggered again and flip our forecast back to an uncertain trend.

Subjective Comment:

Our official forecast has returned to a growth trend.  When we report on the historic performance of our forecasting system, we quote the results of the automated algorithm regardless if our subjective opinion differs.  The S&P 500 daily market data continue to show weakness.  In the past two days the index has regained most of the decline, but both Wednesday and Thursday were on decreasing lighter volume.  Strong-volume down-days combined with weak-volume up-days is a sign of market weakness, and this is precisely the pattern that is developing.

Putting the market data into context, we think the Eurozone debt crisis and the pending Greek default continue to pose risk of high US market volatility for the next few weeks.  We are also concerned about the growth rate of the US money supply.  The weekly updates on the money supply and banking reserves statistics were published by the Federal Reserve and they show no change in the growth trends.

The graphic shows US M2 (Not Seasonally Adjusted) growing at 6.8% annually from June 2010 to June 2011, and at the same rate since August 2011 through the end of February 2012.  The 26% annualized growth last summer occurred during June and July.  From 6/6/11 through 8/8/11 $363 Billion was added to the US money supply, growing at $40 Billion per week.  Since then the straight line growth has been $10 Billion per week.  Austrian Business Cycle Theory (ABCT) explains how the rapid increase in the M2 growth rate last summer has ignited the bubble-boom currently underway in the US economy and most recently in the US stock market.  Every bubble is always followed by a crash, and the crash comes when the growth rate of the money supply slows.  This is unavoidable.  If the growth rate accelerates again the bubble might resume and delay the bust, but the bust will always come eventually.  We noted the growing excess reserves in the US banking system and though perhaps banks would resume an accelerated origination of new loans, but this has not yet happened.  It could at any moment, but unless and until it does there is risk the current bubble could pop.  ABCT explains what is happening and why, but predicting when is very difficult.

Our automated forecast is designed to identify turning points in market trends, and the recent S&P 500 data shows weakness typical of such turning points.  The pattern over the past two weeks has not yet fully formed into a prediction of a decline, but it has shown weakness.  The pending Greek default approaching on March 20th combined with the daily S&P 500 market data and the continuing M2 growth rate that has not accelerated since last summer is the confluence of facts influencing our subjective concern right now.  We think it would be wise to remain in a cash position in the event Greece does not get a bailout and the resulting events precipitate unpredictable results in the US stock market.  Avoid money market funds due to their exposure to European sovereign bonds.  This is our subjective opinion and it conflicts with our automated forecast.  It is our sincere hope providing both the automated forecast and subjective opinion helps you choose the best positioning for your portfolio.