For Thursday, April 26, 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 as our subjective opinion differs from our automated forecast.

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 1.36% on Wednesday with volume above Tuesday and stronger than the 30-day moving average volume.  The S&P 500 would have to decline about 21 points on Thursday (-1.5%) to trigger the stop-loss algorithm and change our forecast to uncertain.

Subjective Comment:

Wednesday was a strong-volume up-day.  This breaks the recent trend of weakness with a single day more typical of a growing market.  One day is not sufficient to create a predictive pattern and we remain cautious for the prospects of future growth.  US markets could just as likely be moving sideways with increased volatility with a decline or resumption of an upward trend equally likely.  We want to see several days of strong-volume advances to confirm an up-trend before recommending investing.  Our automated forecast is a growth trend.  Our historical trades will indicate we recommended investing based on the growth trend.  These subjective comments are provided as an additional tool to help our readers decide how best to position their investments.

Why did markets bounce up on Wednesday?  European, Asian and US markets were all up.  Apple Inc. posted great earnings and it appears market participants are responding to this one piece of good news.  There was plenty of bad news too.  The economy of the United Kingdom is moving into a double-dip recession and Germany had a failed bond auction.  In the US the census bureau published the Durable Goods orders for March.  With a 4.2% decline, durable goods declined with the biggest drop since January 2009 and were below expectations.  The Federal Reserve’s FOMC statement was released and Chairman Bernanke held his press conference.  The Fed made no changes as had been telegraphed by Jon Hilsenrath at the Wall Street Journal this past Monday.  To put all of this into context, the good news was related to consumer goods (Apple), and the bad news was in the sectors where capital goods (durable goods) and long-term investments (failed auction) happen.  Austrian Business Cycle Theory (ABCT) describes how booms and busts happen.  A description of the business cycle points out many features of what happens, including this the well-known fact that capital-goods industries fluctuate more widely than do the consumer-goods industries. The capital-goods industries – especially the industries supplying raw materials, construction, and equipment to other industries — expand much further in the boom, and are hit far more severely in the depression.

Capital goods industries expand first in a boom, and then as the expanding money supply moves through the economy the consumer goods sectors start to boom.  When the money supply growth rates slows the capital goods industries slow down then contract first and then eventually companies that produce consumer goods experience a crash too.  The most recent example in the US was the housing boom and bust.  Before the stock market collapse in late 2008 the US housing industry topped and began its decline almost a year earlier.  A bubble-boom will also come to an end if the money supply growth is at a constant rate instead of an accelerating rate.  This is what we have been experiencing in the US for over the past 9 months.  With March durable goods orders declining a large amount, this is the business cycle process repeating itself.  Without an acceleration in the US money supply growth rate eventually the stock market will stagnate and crash, soon followed by companies like Apple that produce consumer goods.  This is why we are very concerned the US stock markets may be topping right now and why we continue to advise caution.  The situation could change if US banks resume rapid lending and they have plenty of money if they choose to do so.  Tomorrow will be the next weekly update of the US money supply data and we’ll see if the situation has changed.

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