For Monday, April 30, 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 0.24% on Friday with volume below Thursday and lighter than the 30-day moving average volume.  Should the S&P 500 decline about 36 points on Monday (-2.5%) our stop-loss algorithm would likely be triggered and our forecast would change to an uncertain trend.  Historically a one-day decline of 2.5% is rare.

Subjective Comment:

The S&P 500 declined last Monday and then advanced every day through Friday to finish 1.8% ahead for the week, closing just above 1400.  The strong-volume down days from the prior two weeks are starting to age into the past with two strong-volume up-days having occurred on Wednesday and Thursday this most recent week.  We do not have the full formation of a pattern predictive of growth, but such a patter is forming.  Continued advances on strong volume next week could complete the pattern.

As we have been writing all week, we are subjectively cautious about a resumption of the bull market trend in the US.  There reasons for our concern are:

  1. The prior two weeks saw the formation of a pattern that predicts a 50% chance of growth or decline.  This indicates uncertainty.
  2. The steady 7% growth rate of the US money supply for the past 9 months following a 25% growth rate last summer.
  3. Economic indications that while the consumer sector appears strong, the capital goods sector is starting to slow down.

Items 2 and 3 are consistent with Austrian Business Cycle Theory that explains the root cause for bubble-booms followed by busts, as well as the characteristics and sequence of events in the business cycle.  7% annualized growth for the US M2 (not seasonally adjusted) money supply is strong growth and will lead to price inflation.  If M2 continues to grow at 7% the economy will slow and the stock market will stagnate at the same time price inflation gets worse.  The term “stag-flation” was coined in the 1970s to describe this situation, and it appears likely to occur in the US.  Our attempt to subjectively guess when the market might turn is subject to error and there is a lot of liquid money in the economy and in US banks from all the Fed money printing the past 3+ years.  The potential for accelerated money supply growth via the fractional reserve money multiplier has been and will continue be with us for a long time, so the economy and stock market could resume an upward trend anytime.

Aggressive investors should prepare to reenter the US markets next week if strong growth continues.  Cautious investors might choose to wait a while longer.  The two pieces of investment advice we offer without reservation is the absolute avoidance of all bonds (including TIPS) and investing in hedges to preserve wealth during price inflation.

Comments are closed.