For Wednesday, October 10, 2012, We Recommend Investing for Growth

We recommend investing with leveraged index funds to take advantage of growing US stock markets.

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Technical Comment:

The S&P 500 declined 1% on Tuesday with volume higher than Monday but still below the 30 day moving average volume.  If the S&P 500 declines about another 3 points on Wednesday (-0.2%), our automated forecast could change to an uncertain trend based on the stop-loss feature in our algorithms.

Subjective Comment:

Tuesday was technically a strong-volume down-day because volume was higher than Monday.  Our pattern recognition software will look for the accumulation of several such days, so a single such day is not a reason for immediate concern.  Tuesday’s volume was also below the 30 day average, so that’s another reason to think Tuesday will not contribute to the formation of a predictive pattern.  Still, it is never good to see a decline of 1% in a single day when growth is expected.

With US politics focused on the election in a month, there seems to be little discussion of the tax increases pending in January.  If the tax increases occur, they could slow the US economy and stock market advance.  If US banks continue to lend aggressively, the tax increases will be a small pause in an otherwise advancing US market trend.  The money supply data, the US banking reserve data and anything to indicate what banks will do regarding lending are the key things to watch.  It was interesting to see today that the Federal Government filed a civil mortgage fraud lawsuit against Wells Fargo.  This could cause banks to rein in plans to accelerate lending if they fear losses in civil suits.  Conversely, the Federal suit could create a grand settlement to prevent thousands of individual suits from being filed on the same issue.  We will not guess what the banks will do.  We will watch the US banking reserves and the US money supply and make recommendations accordingly.  We continue to advise investing in leveraged index funds, investing in price inflation hedges and avoiding all bonds.

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