MDM - Model switches to BUY after the close/before the next open

Published : October 5 2011 at 6:50 ET

The market undercut its lows then moved aggressively higher on huge volume during the last hour of trade. This has often presaged a further move higher. Thus, a major reversal seen during the last hour of the trading day points to:

a) either a bounce that can be shorted into, in which case the model will reinitiate its sell signal over the next few days


b) the legitimate start of an uptrend, though leadership has yet to show sufficient constructive action

In either case, odds point to a move higher of some sort, thus switching from one's inverse ETF(s) into normal ETF(s) for the time being is a viable strategy. Know, however, that the risk in initiating a new long position in a normal ETF carries more risk than normal since the volatility at present should remain relatively high. Thus, one may instead elect to move to cash and simply take profits here.

As for quantitative easing out of Europe (Euro-QE), many arguments can be made that Euro-QE will be ineffective. That said, Euro-QE could push the markets higher in a lackluster fashion as QE1 and QE2 has done for US markets from March 2009 - June 2011.


Suggested ETFs:


IWM (Russell 2000)



UWM (Russell 2000)



TNA (Russell 2000)


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