For Thursday, May 24, 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 spent most of Wednesday sharply down and then experienced a late-day rally to close up 0.2% for the day.  Volume was lighter than Tuesday but above the 30-day moving average volume.   Our forecast remains for a growth trend with the stop-loss algorithm about 10 S&P 500 points above the trigger point.  A decline on Thursday of about 0.7% would likely change our forecast back to an uncertain trend.

Subjective Comment:

Wednesday ended as an up-day with volume just above the 30-day moving average, but since volume was below Tuesday our system considers it a light-volume up-day.  It is important to remember light-volume up-days combined with strong-volume down-days is a sign of market weakness.  Our stop-loss algorithm is subject to false-starts when the market moves sideways.  If the S&P 500 had closed near Wednesday’s lows, our forecast would have changed back to an uncertain trend.  Given these current technical details in the daily market data, we must advise against investing.  Even though our automated forecast is for market growth, we advise caution.

Tomorrow the Fed will publish the weekly update to the US Money Supply.  For the past two weeks we’ve seen developing signs that the growth rate is slowing.  There are sectors of the US economy that are still doing well, such as new home construction in the high-end market.  This is due to the Federal Reserve’s manipulation of interest rates to historic lows.  There are enough excess reserves that US banks could resume aggressive lending.  That would cause the money supply growth rate to accelerate.  The Fed could resume a Quantitative Easing program.  This would increase money supply growth rate too, but US banks could simply store the QE into more excess reserves which would negate any simulative effects.  The US economy and stock markets are at a stagnating point.  The future trend could be up or down, but it will depend on what the US money supply does.  Absent robust growth in the US, news from China and Europe will cause anxiety and crate volatility in US markets over the near term.

We advise holding a cash position or a risk-off position for more sophisticated investors.  Avoid all bonds.  We had been encouraging investing part of your portfolio in hedges against price inflation.  Some of those investments are likely experiencing downward pressure.  Hold those for the very long term and you will be pleased with the results.  Given the potential slowing of the US money supply growth, we suggest not adding to price inflation hedges at this time.  Instead build up your cash reserves until the future trend presents itself.

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