MDM (Market Direction Model): Signal Change to Neutral

Published : October 6 2010 at 19:59 ET

The NASDAQ Composite has recorded only two distribution days so far in the count. But the action of leading stocks is a valuable part of the model.

With today's vigorous sell off in technology stocks, especially in the cloud computing and networking groups, the model is close to switching signals.

Also, internals in the NASDAQ Composite such as advance/decline and up/down volume have lagged the S&P 500 over the past several days due in part to observed weakness in cloud computing stocks which started last week around September 30.

Whether this uptrend continues depends on the power of QE2. QE2 will make the dollar fall further which will cause hard assets to continue their rise. Incidentally, gold has been on an uptrend since 2001 when it was selling for as little as $255. With technology stocks getting hit hard today, our bets are firmly on precious metals stocks, some of which we have discussed in prior reports.

Here's food for thought. When will factors such as higher taxes, higher tariffs, more regulation, and the possible expiration of the Bush tax cuts on January 1, 2011 start weighing on the market?

But no matter. Price/volume action of the major indices, especially the NASDAQ Composite, and the leading stocks will help shine light down the often treacherous corridors and pathways that continue to bring welcome challenges to us.


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