For Monday, October 15, 2012, We Recommend Investing for Growth

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

Technical Comment:

The S&P 500 declined 0.3% on Friday with volume below Thursday and lighter than the 30 day moving average volume.  If the S&P 500 goes up about 9 points (+0.6%) on Monday our automated forecast is likely to return to a growth trend.

Subjective Comment:

For the past week US markets are down and the S&P 500 produced two strong-volume down-days.  Our pattern recognition process has identified the beginning of a pattern that would predict further market decline, but it is not fully formed.  This bears careful watching.  Our subjective recommendation to invest in US equity markets using leveraged index funds is based on the changes in the US money supply and US banking reserves.  We think we’re early in our prediction of how US banks will react to QE3 and the US market will enter another bubble-boom in the near future.  This will become more obvious as US M2 shows acceleration and US banking reserves show accelerated loan origination rates.

We do see risks that could hinder US market growth.  US banks might change their loan origination rates and accumulate QE3 into excess reserves.  This would stall the bubble-boom and leave the US to face stagflation (inflation without economic and market bubble-growth).  The markets in China and the Eurozone remain fragile and the money supplies in those areas are not growing fast enough to prevent prior mal-investments from crashing.  There are also geopolitical tensions that could spook markets.  We’ve identified the US political “fiscal cliff” as a possible source of fear for some market participants, but we don’t think the consequences of the fiscal cliff are really to terribly troubling.

We are maintaining our recommendation to invest in leveraged index funds that track US equity markets.  We also advise investing in price inflation hedges as the growing money supply will cause price inflation.  Avoid all bonds and continue to monitor the US money supply closely to determine how strong the bubble-boom will be.

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