MDM - MDM Model switches to Sell April 19, 2012
The Market Direction Model (MDM) has switched to a sell.
A potentially sideways to downtrending market is more likely at this juncture due to the following factors:
1) The recent 10-day moving average violation in leaders such as AAPL and PCLN after several weeks of obeying the 10-day along with the subsequent bounce on weaker volume often results in sideways and/or further corrective action.
2) More weakness out of Spain may make the prior bounce in European markets one of a dead cat variety.
3) 4 distribution days on the NASDAQ Composite out of the last 7 trading days, and 10 distribution days on the basis of a 20 day rolling period indicate clear selling pressure despite leading stocks having held up relatively well. The action in AAPL and PCLN were tipping points.
4) Quantative easing is still alive and well but there will be bumps along the way so capitalizing on such bumps can bring profits. Given QE, the duration of sell signals will probably be shorter than normal.
Suggested inverse ETFs:
Note: While one could trade the NASDAQ-100 related ETFs such as PSQ and SQQQ, AAPL is still a bellweather and such stocks don't usually top immediately but take time to round out their topping patterns, thus Russell 2000 related ETFs have been and will probably continue to be weaker should the market remain corrective.
RWM - Russell 2000 small cap 1x bear. It should approximate 1x the inverse of the Russell 2000.
TWM - Russell 2000 small cap 2x bear.
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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