MDM - Model switches to SELL on August 2, 2012

Published : August 2 2012 at 9:30 ET

MDM has switched to a sell signal.

The market reacted somewhat negatively to yesterday's Federal Reserve announcement that "economic activity decelerated somewhat over the first half of this year." This is a change from their prior view that economic activity was slowly picking up. No mention was made of QE3, and, as expected, the Fed's plan is to keep interest rates low through late 2014. The European Central Bank reported with no signs of concrete action to back up their words and claims. Markets consequently sold off hard in premarket trading.

The major market averages have shown signs of distribution over the last few weeks, and distribution is defined as a day where the market closes lower than the day before on higher volume, providing a clue that institutional investors are unloading shares. As this negative action increases, the odds of a market correction also increase.

For those who are holding long positions in stocks, the underlying tone of the market has deteriorated as a number number of leading big-cap NASDAQ stocks have broken down or are trading trendlessly, such as (PCLN) and Intuitive Surgical (ISRG) while smaller, nascent leaders are either breaking down or trading in a trendless manner characterized by wide intraday ranges such as Francesca's Holdings (FRAN) and Three D Systems (DDD). This further increases risk in this environment. With risk rising, investors should keep their stocks on a tight leash by keeping clear exit points in mind. Investing is not about making predictions in "buy and hope" fashion, but by making decisions, taking positions, and then relying on the market itself to tell you whether your decision was right or wrong and then reacting to the informational feedback system that the market provides in order to build positons in winners and cutting losers short.

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