MDM - Commentary September 7, 2011

Published : September 7 2011 at 17:53 ET

Today's NASDAQ Composite traded on higher volume with the index up more than the required threshold level. But there was scant leadership evident, and as we have reported, the market is in a "chop zone". The MDM is not a day trading model but attempts to catch the intermediate term trends. In doing so, it deals primarily with price/volume of leading stocks and major indices. Thus during periods of excessive volatility such as the one we are in now, investors can get thrown, as can the model. Thus the model has a fail safe it obeys to keep losses to typically less than 2% on a false signal. This fail-safe is up around 2612 on the NASDAQ Composite which is 1.96% from where the sell signal was issued. This 2612 level could change, however, depending on market conditions. Note, analysts predictions are not weighed into the model at all. Material news can affect the model provided price/volume confirms, in either direction.

Obama is giving his speech on Thursday night after the close. The model will be watching to see how price/volume reacts to market anticipation before the speech in tomorrow's trade, or in other words, the market pricing in the 'good' news. It will also be watching to see how the market reacts to Obama's Thursday night speech on Friday and early the following week. Usually, 1-3 days is all that is needed to identify whether a new uptrend is beginning (and would be accompanied by a legitimate follow through day) or if the uptrend is a dead cat bounce that can be shorted, or at least positions in inverse ETFs held.

The model, in the meantime, remains on a sell signal. Most leading stocks have sloppy patterns that are not indicative of stable bases from which to launch. It is possible such stocks will stabilize, then issue buyable pivot points, at which time, the model would probably move to either a cash or buy signal.

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