For Friday, April 27, 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 0.67% on Thursday with volume above Wednesday and stronger than the 30-day moving average volume.  The S&P 500 would have to decline about 32 points on Thursday (-2.3%) to trigger the stop-loss algorithm and change our forecast to uncertain.

Subjective Comment:

Thursday was the second day in a row for a strong-volume up-day for the S&P 500.  This creates the beginning of a bullish pattern, but it will take a few more days for the pattern to fully form.  The index is now far enough ahead of our stop-loss trigger that there is a low statistical probability of the S&P 500 dropping enough on Friday to change our forecast.  We’re still not sure what the market will do and there’s just as much bad financial news as good when we scan the headlines.  The advancing market appears good, but the credit rating for Spain has been downgraded.  It is important to guard against opinion bias.  Once an opinion is formed, people tend to look for information that supports their conclusion and ignore contrary information.  Our opinion lately has been pessimistic regarding future growth of the US stock market and continues to be.  It is important to be objective and look at data for understanding, and that’s what we hope to accomplish.

With that said, here is our analysis of the US money supply in response to the weekly data update from the Federal Reserve.  In addition to the Fed’s data, we also look at the M3 statistics provided by Shadowstats.com, which is updated monthly.  US M2 (not seasonally adjusted) continues its steady straight-line growth as it has for the past 9 months.  The annualized growth crept up a bit to 7.6%, but we don’t see this as a significant acceleration.  It appears to be random variability in the data series.  US Banking Reserves data was not updated this week.  Bank’s required reserves appear to have flattened out over the past 3 months which suggest the growth of the money supply will slow.  Excess reserves are also flat.  It appears the net loan originations from the US banking system is effectively zero.  New loans are being made at the same rate older loans are being paid off.  US M3 from Shadowstats.com is flat.  The year-over-year M3 growth rate has gone down from last month, and it appears the absolute M3 value has declined for the first time in two years.  All of this means the US money supply will not be able to support the bubble-boom that has been underway since last summer.  US Banks still have $1.5 Trillion Dollars of excess reserves, so they can accelerate lending anytime they choose.  The Federal Reserve FOMC announcement yesterday suggest the Fed will continue its current monetary policy, so there is no indication money supply growth rates will accelerate.  Still, the moderate rates of growth in the money supply will cause price inflation to continue.

We suggest maintaining a risk-off position relative to US equities.  Don’t invest in the US market just yet.  Our automated forecast indicates growth from the reversal of the stop-loss algorithm, not a pattern that predicts growth.  Investigate and invest in price inflation hedges that make the most sense for your circumstances.  Sell any and all bonds you have and avoid purchasing more bonds, including TIPS.

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