For Friday, April 13, 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 advanced again on Thursday.  The index rose 1.4% on volume lighter than Wednesday and below the 30-day moving average volume.  The advance was sufficient to reverse the stop-loss trigger in our automated algorithms, so our forecast has returned to a growth trend.  Should the S&P 500 decline about 15 points on Friday (-1%) the stop-loss algorithm would likely be triggered again and shift our forecast back to uncertain.

Subjective Comment:

In the past two weeks there have been a large number of strong-volume down-days on the S&P 500 index.  The past two days both had a strong advance in the index, but both of these advances were on successively lower volume, and both below the 30-day moving average volume.  The accumulation of strong-volume down-days combined with weak-volume up-days is typically a sign of market weakness.  The change in our forecast back to a growth trend was from the reversal of the stop-loss trigger and not from a pattern predictive of growth.  Our official forecast is now for growth, but cautious investors should consider waiting to see if a strong-volume up-day occurs on Friday before jumping back into equities.  Aggressive investors could consider getting back into the market.  Our subjective suggestion is to wait.  The patterns forming right now are not complete and suggest both growth and decline are possible.  If this has been a short correction in the bull market, the advancing trend will reassert itself and investors will be able to get back in.  We are advising caution in case we are at a turning point with the market about to decline further.

Every Thursday the Federal Reserve publishes updated US money supply statisticsAustrian Business Cycle Theory (ABCT) explains how the growth rates of the money supply cause the business cycle along with market booms and busts.  This is why it is so important for investors to know what is happening with the money supply, and we encourage following the “Not Seasonally Adjusted” M2 money supply along with the M3 estimates provided by Shadowstats.com.  Shadowstats.com provides an annual change while we curve-fit the M2 data to provide a more accurate assessment of the money supply growth rate.  For the past 9 months US M2 (NSA) has been growing at a steady 7% annualized growth rate based on our straight-line curve fit since 8/8/12.  For two months last summer the US M2 (NSA) growth rate was over 25% annualized as US banks originated new loans aggressively.  ABCT describes how an accelerating growth rate in the money supply will initiate and then sustain a boom in an economy and its stock market.  This is what happened last summer when the M2 growth rate accelerated to 25%.  The bubble-boom that has been ongoing has been sustained by the 7%+ growth since.  ABCT also explains why it is necessary for the money supply to continue to accelerate for the boom to continue.  If the money supply grows more slowly the boom will end.  This describes the current situation in the US.  Two months last summer saw 25% growth in the M2 (NSA) money supply, sparking a bubble-boom.  Since then we’ve had a very constant 7% growth rate for 9 months.  We think the bubble-boom is reaching its end point.  The stock market will likely be bumpy before it crashes.  It will crash if M2 growth remains at or below 7%.  Should banks accelerate lending, the fractional reserve money multiplier could prolong the current bubble-boom and delay the crash by accelerating the money supply growth.  If US banks wait too long, then the current bubble will pop.

The growth rate of the US money supply is going to cause price inflation to get worse than it already is.  This will cause interest rates to rise and bond prices to fall.  Sell any bond investments you have.  We hope you find our forecast and subjective comments useful.  Please let your friends know about us and consider giving us a “like” on Facebook.