For Thursday, March 29, 2012, the market forecast is a growth-trend

We recommend any leveraged Exchange Traded Fund (ETF) that grows with the US market.

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 declined 0.5% on Wednesday with volume higher than Tuesday and above the 30-day moving average volume.  Should the S&P 500 decline about 14 points (-1%) on Thursday our forecast could change to an uncertain trend.

Subjective Comment:

On Wednesday the S&P 500 index declined on high volume, creating a strong-volume down-day.  This type of market action is typical of weakness, but several such days are needed close together to form a pattern of predictive value.  One such day during an otherwise up-trend is not uncommon.  Our forecast remains a full 1% above the current stop-loss trigger, so we are not concerned about the past two days of declines.  If continued strong-volume down-days occur that would be reason to reconsider our opinion.  For now we expect continued growth in US markets and high price inflation, so our investment advice remains unchanged:

  • Sell all your bonds, including TIPS
  • Research and invest in hedges against price inflation
  • Invest in leveraged index funds to take advantage of the continuing growth in US markets
  • Keep checking our daily forecast

Today the European Central Bank published their monthly money supply growth rates (M2 & M3) for February.  M2 growth increased to 2.8%, its highest rate in over two years.  M3 also reached 2.8% growth but has been that high a half year ago.  The ECB’s LTRO operations at the end of January and February have flooded the European Banking system with massive amounts of Euros, but this has not turned into lending to businesses as the amount of Euros at the ECB Deposit Facility remains near record highs (data here).  European banks are not lending except to buy sovereign debt.  Despite ECB President Draghi’s comments the LTRO was aimed at preventing a credit crunch, we think the LTRO was about supporting the sovereign debt markets.  European banks do not have the confidence to lend to businesses, so they are parking their funds at the ECB and limiting lending to bond purchasing.  If the Eurozone debt crisis flares up again with Spain or Italy making headlines it could spark a major sell-off in European markets.  Such an event would likely spook many US investors and could cause a dip in US markets.  Europe has not had a sufficient, sustained acceleration in their money supply growth rates to reignite a bubble-boom.  We think European banks are not going to accelerate lending and the on-going recession with price inflation will continue.  Compared to the US, Europe is in a different phase of the business cycle as described by Austrian Business Cycle Theory.  Because of this, any market drop in Europe should have a temporary impact on US markets.  Tomorrow we will analyze and comment on US money supply statistics and trends.

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