For Monday, June 11, 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 advanced 0.8% on Friday with volume below Thursday and below the 30-day moving average volume.  If the S&P 500 were to decline about 2.6% (-35 points) on Monday, our forecast could return to an uncertain trend.

Subjective Comment:

We strongly urge our readers to ignore our automated forecast regarding a growth trend for US markets.  Our stop-loss algorithm can be tricked into producing false signals during high periods of market volatility or sideways market trends.  We think this is what is happening.  The upward motion this past week had some strong volume with it, but we don’t see this as sustainable.  The down-trend over the past few months has been on consistently strong volume, so the prior week is not enough to change our opinion about the overall market trend.

Reinforcing our opinion from the technical details of our analysis is the US M2 money supply growth rate changes we have been writing about for the past 5 weeks.  We have now analyzed the updated US money supply data the Federal Reserve published this past Thursday, and we continue to see a breakdown of the 7%+ annualized growth rate that had been in place since last Summer.  On the residual control chart of the M2 money supply we have now seen 6 weeks in a row with special cause conditions, all indicating the growth rate has slowed.  Visually, it appears the new annualized growth rate is 0%.  It is too soon to produce a fitted line through these new data points, but the trend appears very flat.  The US M2 Money Supply was growing at 7%+ annualized until about 2 months ago, and since it is no longer growing at all.  This is a very large change in the growth rate.

Austrian Business Cycle Theory describes what happens to an economy (and hence the stock market) when the money supply grows, followed by a slowing or reversal of the growth rate.  The initial growth creates an unsustainable bubble-boom in the economy and stock market.  Eventually the bubble has to pop and the economy and market will contract.  The larger the changes in the money supply growth rate, the more dramatic the bubble growth and eventual post-bubble pop.  The swing from over 7% to zero growth is very likely to produce a pretty hard crash.  The Federal Reserve and US Banks could, at any moment, cause the US M2 money supply to resume rapid growth.  At this point such action might mitigate or delay a crash, but only if they start creating more money now.  The longer the zero growth rate persists, the more likely a hard crash will come soon.

Do not invest in US stock markets right now.  If you are invested, move to a risk-off position or liquidate your holdings.  Avoid bonds as they have little upside and a lot of downside risk when price inflation catches up to the money growth that has already occurred.  Hold your price inflation hedges for the long-term, but do not add to those holdings right now as they will likely fluctuate in value during a market crash.  Accumulation of cash is the best strategy we can offer right now.

For our regular readers, we apologize for the lateness of this post.  For a possible explanation of why the money supply growth rate has suddenly changed, we recommend this post from EconomicPolicyJournal.com.

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