MDM - Model switches to Sell, April 10, 2012

Published : April 10 2012 at 11:51 ET

With 6 distribution days logged on the NASDAQ Composite out of 7 trading days, and today looking like another distribution day, and with European markets having broken their uptrend such as the FTSE 100 (United Kingdom), CAC 40 (France), and DAX (Germany), the model has switched to a sell.

European markets have been the center of attention and, while the US markets have been leading the way, weakness in European markets can have a stalling or mild correctional effect on US markets.

Currently, ETFs such as IEV, which corresponds to the return of the S&P Europe 350 Index which is a good representation of leading bourses in Europe, are showing greater and greater lag relative to the US market. Price/volume action in leading European bourses is showing distribution, further confirming the renewed worries about Europe, particularly on Spain and Italy, as denoted by rising bond yields and further weakness in European markets as recently as today (Thursday). In such situations, emerging markets in Europe tend to suffer the most, thus our recommendation for ETF EDZ shown below as one possibility.

Normally, the model would switch to a sell signal standby on its fifth distribution day, which was on March 30, but due to quantitative easing factors (in its various forms) accounted for by the model, and the strong action of leading stocks (AAPL hit new highs on April 3, PCLN hit new highs on April 4, etc), the model switched to a neutral signal on April 4.

Today, on April 10, given the price/volume action in markets factored in by the model, it is switching to a sell.


Suggested inverse ETFs:

1-times inverse

RWM - Russell 2000 small cap 1x bear. It should approximate 1x the inverse of the Russell 2000.

2-times inverse

TWM - Russell 2000 small cap 2x bear.

3-times inverse

TZA - Russell 2000 small cap 3x bear.

EDZ - MSCI European emerging markets index 3x bear. Note, there are 1x and 2x equivalents but they are too thin so we would suggest position sizing in EDZ according to your risk tolerance levels.

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