For Wednesday, May 23, 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 advance 0.05% on Tuesday with volume above Monday and higher than the 30-day moving average volume.  Our forecast for a growth trend is based on the reversal of the stop-loss trigger.  If the S&P 500 drops about 7 points on Wednesday (-0.5%) the stop-loss would likely trigger again and shift our forecast back to an uncertain trend.

Subjective Comment:

The Dow and Nasdaq were both down on Tuesday with the S&P 500 barely up at all.  The upward movement of the S&P 500 index combined with the strong volume creates a strong-volume up-day in our pattern recognition processing, but we do not put any confidence into Tuesday’s market action when it comes to growth.  A strong up-day would have been a much larger move in the index combined with strong volume.

There has been a lot of political chatter out of Europe about Euro-bonds and “growth” policies instead of austerity.  Putting the public-relations “spin” aside, this comes down to the political choice of having the European Central Bank print a lot of new Euros in an attempt to stimulate the economy and stop the current recessionary pain.  Germany remains against this policy, but it seems the newly elected officials are all for it as austerity is very unpopular.  If the ECB starts aggressively growing the Euro money supply there could be a bubble-boom in the Eurozone.  In the short term this would reduce some of the downward pressure on US stocks, although it would be price inflationary for Europe in the longer run.  This needs to be watched for the influence it could have on US markets.

Of more significance for the US is the Dollar money supply.  US banks could resume aggressive lending as they have over $1.4 Trillion Dollars of excess reserves, but they have been holding this vast amount of money for almost 10 months without aggressive lending.  US banks appear unwilling to lend.  Given the recent trading losses by JP Morgan Chase, that bank is very unlikely to be expanding its loan portfolio.  The US money supply growth rate has been slowing after a constant 7% annualized growth for the past 10 months.  Unless the Federal Reserve causes the money supply growth to accelerate, we expect US markets to stagnate and possibly decline from here.

We recommend ignoring our automated forecast for now and holding cash positions (or risk-off positions).  Avoid all bonds and be patient until it becomes clear what direction the next trend will be.  There is simply too much uncertainty right now to even guess what will happen next.

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