For Tuesday, October 16, 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 advanced 0.8% on Monday with volume above Friday but just below the 30 day moving average volume.  The up-tick in the market index was sufficient to reverse the stop loss trigger and return our automated forecast to a growth trend.  If the S&P 500 were to decline about 4 points on Tuesday (-0.3%) the stop loss could be triggered again and change our forecast to an uncertain trend.

Subjective Comment:

The reversal of our automated forecast is consistent with our expectations of market growth, but our automated forecast remains susceptible to sporadic false positives if the S&P 500 remains volatile with sideways movement.  A small drop on Tuesday could trigger the stop loss algorithm again.  Our forecast of growth probably seems inconsistent with a lot of the economic data being published recently.  There was a 2 month slowdown in the US M2 money supply growth rate followed by resumed 7% annualized growth.  The economy usually lags the change in the money supply growth, so we are not surprised by the current data.  The resumption of 7% annualized growth is not enough to cause another bubble-boom in the US economy and stock market, but it will delay what would have been a crash had M2 growth remained slower.  We are expecting US banks to accelerate loan originations as a result of the indefinite Quantitative Easing policy from the Federal Reserve.  This will also cause serious price inflation.  Price inflation will continue based on the prior growth of the money supply, so the new QE program from the Fed will make prices go even higher.  Price inflation hedges and leveraged index funds that grow with US markets are our recommended investment strategies right now.  Continue to avoid all bonds.

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