For Friday, June 15, 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 advanced Thursday by 1.1% with volume higher than Wednesday but below the 30-day moving average volume.  A decline on Friday of about 1.8% would be necessary to trigger our stop-loss algorithm and switch our forecast back to an uncertain trend.

Subjective Comment:

The advance on Thursday was on slightly stronger volume.  This is the type of market action that is more indicative of growth.  One day of strong volume growth is not enough to formulate a predictive pattern.  The upward movement was boosted in the early afternoon on rumors that central banks of the G-20 countries are preparing for coordinated monetary action after this weekend’s Greek elections, if needed.  The Eurozone debt crisis is getting very bad with bank runs accelerating, capital controls being openly discussed and Foreign Exchange markets are going to suspend trading over the weekend and then resume Monday after the elections.  (By the way, there will be elections in Egypt over the weekend too.)  Several rating agencies continue to downgrade European banks as well.  The uncertainty surrounding the Eurozone debt crisis is ramping up and guessing what might happen in the next few days or weeks is worse than just admitting that no one knows.  Greece has even banned election polls in an effort to reduce national panic.  At moments like this a frequent action by government politicians and bureaucrats is to avoid public appearances, discuss other topics, and if they must, pretend like everything will be fine (lie) in order to prevent panic.  There is no reason to panic if you have liquidated your equity positions and are holding cash as we have been advising.  You should also be out of bonds.  Whatever happens, this should help you avoid any losses.  If you miss out on gains, consider the alternative and be happy to just preserve your wealth.  Continue to hold your price inflation hedges for the long term.

The US money supply has not been growing for months, so the US bubble-boom is not in a good position to absorb the consequence that will surely spillover a bit from Europe.  If the Fed resumes aggressive increases in the money supply another bubble could begin, but not before there are serious ups and downs in the very near term.  The switch from over 7% annualized money supply growth to ZERO growth for the past few months is a big and sudden change.  US Banks have the excess reserves to get through a short-term crisis, but the stock market and economy are likely to take a hit.

We have analyzed the weekly update US M2 Money Supply published on 6/14/12 with data through 6/4/12.  The situation is extremely troubling.  Despite some growth in M2 week over week, the residual control chart continues to show out-of-control conditions consistent with a dramatic slowdown in the money supply growth.  After the bouncing around up and down, we now have 3 straight months of virtually ZERO GROWTH for the US M2 money supply (not seasonally adjusted).  This comes after almost a year of annualized growth of 7.5%.  Given the large expansion of the money supply that has occurred, the sudden stop and zero growth that is now clearly apparent is going to prevent US stock markets from advancing.  The rumors today of possible central bank action might have spurred a short rally, but if the money does not become available for purchasing stocks then prices will not continue to advance.

Austrian Business Cycle Theory (ABCT) gives a very clear description of what will happen to US stocks and the US economy as a result of the prior expanding and now zero growth of the money supply.  The bubble we’ve had since last summer is about to pop.  ABCT does not predict when, but it explains why and how.  Our forecasting process helps us predict when but is susceptible to large volatility and sideways market trends.  Based on our interpretation of the money supply and the volatility in markets we continue to strongly advise holding and accumulating cash, avoiding bonds and equities, and holding price inflation hedges for the very long term.  The next few days could prove very interesting given the pending Greek elections and the on-going crisis in Europe.

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