MDM - Neutrality for now

Published : January 6 2011 at 12:55 ET

The Market Direction Model (MDM) has been in neutral since December 10, yet the general markets continue higher in a non-committal, low volume manner, especially through much of December.

The market environment has been one of the most unusual on record. There has never been a sustained strong rally without a valid follow through day (FTD). Investor's Business Daily's Big Picture column once violated this rule and switched to a buy signal, but that buy signal proved false.

That said, MDM may switch to a buy signal without a valid FTD as there are other variables that are weighed into the model. So far, the model remains on neutral.

I learned while working for Bill O'Neil that cash is often king, especially during unusual market environments. He spent time on the sidelines then would hit the markets hard when the window was clearly open. In other words, the market will always be there, there will always be new bull markets, and so in unusual environments such as the one we're in, it is sometimes best to stay neutral.

In the meantime, we continue to provide actionable stock ideas through our Pocket Pivot Review and Follow The Stock services so even if the market were to continue higher, odds are that the strongest stocks would continue to outperform. Most of the stocks we have mentioned in recent reports are trading higher and thus out of buying range such as ARMH, APKT, LEA, VMW, MIPS, SMSI, and CAVM.

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