MDM - Question: Doesn't the MDM discipline always wait for a follow through day and a confirmation of a rally attempt.?

Published : March 15 2011 at 10:53 ET

Q: Doesn't the MDM discipline wait for a follow through day and a confirmation of a rally attempt. I have been reading your stuff for years now and I am completely thrown off. Doesn't the MDM wait for the market to "prove" itself instead of taking what appears a random shot at a buy point and a high risk entry point.

A: The MDM generally waits for a follow through day, however, on rare occasions, it has rules that enable it to step outside this normal configuration. Historically, drops in markets which are brought on by this type of crisis event creates buying opportunities in specific areas. Therefore, odds are that this drop can be bought here. Thus, it was best to take profit on the sell signal issued on March 8, and go long.

Of course, nothing is certain, so if the market heads lower, the fail-safe will kick in. Japan's nuclear situation could worsen, though given everything I understand about the situation, the worst is behind them, as all three reactors are now in cold shutdown status and radiation levels are subsiding. Given current entry levels when the email was sent earlier today, that represents a 0.5% risk in a 1-times ETF such as QQQQ and a 1.4% risk in a 3-times ETF such as TQQQ. Given that small downside risk, it is a risk worth taking. Even if one got to the email late, current risk levels as of this writing (10:45am EST) are 1.4% in a 1-times ETF such as QQQQ and 4.3% risk in a 3-times ETF such as TQQQ.

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