For Tuesday, May 29, 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 index declined on Friday 0.2% with very light volume.  Volume was far below Thursday and the 30-day moving average volume.  Our automated forecast remains at a growth trend.  US stock markets are closed on Monday for the Memorial Day holiday, so a decline on Tuesday of 7 or more points on the S&P 500 would likely be enough to trigger our stop-loss algorithm.  If triggered, our forecast will return to an uncertain trend.

Subjective Comment:

The very light volume on Friday is common prior to a holiday weekend.  The minor movement in the market index combined with the light volume makes Friday unusable for interpretation of trends and technical analysis.  For a detailed explanation of the current technical indicators we follow combined with our analysis of the US Money Supply, we encourage you to read this post.

The Eurozone debt crisis is reaching a tipping point.  The exit of Greece from the Euro with the return of a devalued Drachma is virtually certain at this point.  The denials of such an event by various officials is expected as there is a long history of politicians and bureaucrats denying a currency devaluation will occur right up until the moment it happens.  When you’re about to steal from someone, you would be a fool to warn them of your intentions.  When the Drachma is reintroduced by Greece, it will come suddenly, or at least it will appear sudden to most.  The Greeks are becoming aware of this and they are removing their Euros from the Greek banks in droves.  A full-blown bank run is in progress, and the bank runs are spilling over into other Eurozone countries as well.  This is likely the calm before the storm.  When things start to happen in Europe, it will be dramatic and chaotic.  This will have some impact on US markets.  Given the slowing of US money supply growth we think external pressure will produce downward pressure on US markets.  How much of an impact and for how long is anyone’s guess.

Given the technical indicators from US market data, the status of the US money supply and the debt crisis in Europe, we recommend holding and accumulating cash for now.  If you have positions in hedges against price inflation continue to hold them for the long term.  Avoid all bonds.  We know this is difficult advice for investors.  Like you, we want our investments to grow and holding cash is not growth.  Our recommendation is a defensive position to protect against downside risk.  We do not see US markets advancing right now.  We are concerned about money market funds as they have exposure to European sovereign default risk.  Our advice is for the very short term until a new trend, up or down, presents itself as an opportunity.  For now there is just too much uncertainty for us to make a recommendation regarding the US markets.

Enjoy your holiday weekend!

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