MDM - Model switches to SELL on February 3, 2014

Published : February 3 2014 at 10:16 ET

The model has switched to a SELL signal. The S&P 500 has broken down through its current consolidation which is about 0.7% from its Friday's close. This represents a change in price/volume action since January 2013. Keep in mind that with quantitative easing still close to near full and on full across major central central banks, the major averages could find their floor sooner than later, so the current sell signal may be short lived, designed to capture any sudden quick downside moves, as the market tends to take the escalator up, and the elevator down.

General Commentary:

The Federal Reserve cut bond buying to $65 billion a month as expected. It said the labor market showed "further improvement" and that "growth in economic activity" had picked up. The Fed also signaled as expected that it's likely to continue to steadily reduce its purchases in the coming months. The Fed did not change its targets for inflation, short-term interest rates or its desired unemployment rate. 

Janet Yeltsin will take over next month as Fed chairperson. She is known to be a pro-quantitative easing. Nevertheless, markets are digesting the Fed's words and today's fears of deflation in the euro zone by increasing the level of selling pressure beyond the norm since January 2, 2013, the date the Fed said it would print money full steam ahead. 

That said, deflationary fears are triggering speculation that the European Central Bank may cut interest rates or use nonconventional policy measures. This implies more forms of quantitative easing ahead for the ECB. QE has served to create support for the markets since January 2, 2013, with corrections contained to within 5-6%. With Friday's action, the market is nearing these levels.

So while QE remains on full blast across major central banks though somewhat less so at $65 billion from the Federal Reserve, markets are forward looking and last Wednesday's statements from the Fed indicate even less QE in the future, thus markets have been correcting with the major averages off 3-4% from their highs. 

While bullish arguments imply the uptrend will continue, price/volume action shows short term weakness ahead so the model is switching to a SELL signal. 


Suggested ETFs:

1-times inverse

RWM - Russell 2000 small cap 1x bear. It should approximate 1x the inverse of the Russell 2000.

PSQ - NASDAQ 100 1x bear.

2-times inverse

TWM - Russell 2000 small cap 2x bear.

QID - NASDAQ 100 2x bear.

3-times inverse

TZA - Russell 2000 small cap 3x bear.

SQQQ - NASDAQ 100 3x bear.

TECS - S&P Techology Select Sector 3x bear.

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