For Friday, March 30, 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 0.2% on Thursday with volume just below Wednesday and ever so slightly above the 30-day moving average volume.  If the S&P 500 drops about 7 points on Friday (-0.5%) our forecast could change to an uncertain trend.

Subjective Comment:

Our automated process does not classify Thursday as a strong-volume down-day.  Since the volume was below Wednesday the slight market decline on Thursday is not seen as contributing to the formation of a pattern predictive of a further decline.  Additionally, US markets were down much more for most of the trading day and then trimmed losses going into the close of the session.  There are a lot of people very nervous the current bull market has reached its top and will turn from here.  Strong market declines in China and Europe are contributing to these fears.  It is important to remember those economies have not had the necessary monetary conditions to reignite bubble-booms as explained by Austrian Business Cycle Theory (ABCT).  They will continue to decline or stagnate, and this will put some downward pressure on US markets.  However, the expanding US money supply appears to remain sufficient to counteract and allow the current growth trend to continue.

The weekly update of US money supply statistics have been published (data).  US M2 money supply (not seasonally adjusted) continues to grow at an annualized straight-line rate of 7%.  This marks 32 weeks of growth at the mid to low 7% range ($13 Billon/Week) following the rapid growth of 25% from June and July last summer ($40 Billion/Week).  The 25% growth rate last summer followed a prior growth rate of just under 7% for more than a year.  At the current rate M2 (NSA) will reach $10 Trillion in just over 2 months. ABCT explains how acceleration in the growth rate of the money supply sparks a bubble-boom in the economy and stock market.  The 25% growth this past summer is what has sparked the current market rally, and it has been sustained by the continued 7% growth since.  If the money supply growth remains at its current 7% rate or slows, the bubble will pop causing the economy to return to a recession and stocks to decline.

ABCT does not predict how long a bubble will last, so that’s where our automated forecast becomes useful.  Should the current market rally top out, our algorithms will identify the patterns in the daily data that predict decline.  Our forecast is not perfect, so we have a stop-loss feature to protect against declines that occur without a historic pattern repeating itself.  This safety feature causes occasional false signals, but for the added safety against large declines the occasional false signal is acceptable.  This is why we recommend investing in leveraged index funds that track US markets.  Our forecast and ABCT both signal continued growth.  ABCT explains how a bubble-boom must end based on the money supply growth rate which we analyze every week.  Our market forecast processes the S&P 500 market data every day.  If the market is going to reverse, we will be able to provide insight to help you exit with most of your gains intact.

The growing money supply also means price inflation will occur, and this is indeed already happening and getting worse.  This is all the more reason to invest now.  You need to grow your wealth faster than the rate of price inflation, so the use of leverage is recommended.  Our investment advice remains the same:

  • Sell all your bonds, including TIPS – they will drop in value as price inflation drives up interest rates
  • 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