MDM - Switches to Buy on December 2, 2011

Published : December 2 2011 at 14:18 ET

The U.S. Federal Reserve, the European Central Bank (ECB), the Bank of England, the Bank of Japan and the Swiss National Bank all recently agreed to increase liquidity to help spur economic activity.

The central banks agreed to lower the pricing on existing temporary U.S. dollar liquidity swap arrangements by 50 basis points, putting the new rate as the U.S. dollar overnight index swap rate plus 50 basis points.

The pricing will apply to all operations beginning Dec. 5. Access to the swap lines has been extended until Feb. 1, 2013.

This means that dollars will be made available at lower rates until Feb 1, 2013 to Europe's troubled financial sector.

In addition, the ECB on Tuesday November 30 failed to fully offset its purchases of euro-zone government bonds through a weekly money-market operation, highlighting growing tensions in Europe’s banking system as institutions scramble for cash.

If the ECB doesn’t step in with an additional tender aimed at mopping up the leftover liquidity, then the new ECB president is potentially ready to accept monetization of debt, thus challenge the German view about printing money via open-market bond purchases. This could open the door to increased QE out of the Eurozone.


Given the price/volume action in major indices and leading stocks such as ROST, DLTR, BIIB, PNRA, FAST, HIBB, ORLY, SWI, QCOR, ISRG, MA  (many which are in first and second stage bases thus pose less risk) since this news, the model has thus switched to a buy signal. Of course, keep in mind that the timing is still premature on a number of leading names as they move toward nearing completion of their basing patterns (AAPL, UA, RAX, RHT, CMG, HLF, HANS, ULTA). Patience will be required on these names. On others, we will continue to send out reports as we see actionable pivot points.

Since we are still in a period of unusually high volatility, some members may prefer to pyramid into their position(s) slowly, letting the price of their respective ETF(s) prove themselves before adding to their position(s). Since the market has come straight up from lows, the fail-safe, if activated before the market has a chance to move higher, will most likely be beyond its normal -2% range. This is an unlikely but possible occurrence in this environment. In the days ahead, the model expects to see constructive pull backs as the market moves higher.

Suggested ETFs:


IWM (Russell 2000)


SPY (S&P 500)


UWM (Russell 2000)


SSO (S&P 500)


TNA (Russell 2000)


UPRO (S&P 500)

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