For Thursday, May 31, 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 1.4% Wednesday with volume above Tuesday but below the 30-day moving average volume.  Our automated forecast remains for growth but the S&P 500 decline was almost enough to trigger the stop-loss algorithm within our automated forecasting process.  If the S&P 500 declines another 2 points on Thursday the algorithm will likely trigger and change our forecast to an uncertain trend.

Subjective Comment:

Wednesday was a high-volume down-day.  The pattern of a weak market continues with up-days occurring on weak volume combined with down-days on stronger volume.  There may be occasional up-days in US stock markets, but the overall trend for the near future will be sideways movement or a decline.

Our recent posts have discussed the slowing of the US money supply growth rate.  Today at EconomicPolicyJournal.com was an excellent post providing one possible explanation for the current slowing of the money supply.  We encourage you to read it.  There was also a follow up post with additional details of how the Federal Reserve controls the money supply to fix interest rates.  To summarize these articles, it appears the Fed is actively managing the money supply to hold the Federal Funds Rate at 0.15%.  Money appears to be flowing out of Europe and into the United States in response to the Eurozone debt crisis which is getting very bad.  This flow of funds would cause the Federal Funds Rate to decline, so the Fed must remove money reserves from the US banking system in order to keep the rate from dropping.  This is a highly plausible explanation and is well supported.  About a month ago we reported the first indications of the slowing growth of the US money supply and have continued to warn about this every week since.  Now we have a reasonable explanation of the cause.

Continue to acquire and hold cash.  Avoid money market funds, all bonds and US equities.  Hold any price inflation hedges you currently own.  Wait for the current situation to pass and for a clear signal of a new trend before investing.  There will be opportunities for growing wealth in the future.  For now wealth preservation is the best investing strategy.

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