Model Moving to Neutralizing of Sell Signal and into Buy Signal

Published : September 1 2010 at 15:57 ET

As we wrote earlier this week, if you are taking a purist approach to the Market Direction Model, there has up to today been no neutralization of the sell signal of August 11, hence there was no reason to sell core positions in any inverse ETF position taken August 11. This remained true, until today, where we are now seeing sufficient volume and price movement on the NASDAQ Composite and the other major market indexes to call a follow-through day, which sends us to a buy signal. This is our suggested strategy:

According to your risk level, purchase : the 1x QQQQ or SPY ETFs, the 2x QLD or SSO ETFs. For those who wish to trade more aggressively the 3x ETFs in the Semiconductor Index (SOXL), the Russell 2000 (TNA), the Russell 1000 Technology (TYH), the three-times leveraged NASDAQ 100 Index (TQQQ), and the three-times leveraged S&P 500 Index (UPRO) could be bought here. Position sizes are at the discretion of each subscriber, depending on risk levels, but a 25% position in a 1x ETF would be a sufficient start here for a very conservative approach.

The idea behind the 3x ETFs is that if the market is bouncing on a strong 4th-day follow-through, then these sectors and ETFs are likely to bounce hard as well. Remember that 3x ETFs, like 2x ETFs, entail more risk. 

Currently we have taken a position in the SOXL.




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