MDM - Note on Sell signal issued by MDM

Published : April 19 2012 at 11:27 ET

Since quantitative easing (QE) began in 2009, the market has only had two significant corrections: May 2010 and August 2011. The Market Direction Model caught both corrections.

In studying market pullbacks since 2009, many are short lived but occur quickly, over a handful of days.

The model adapted to QE in 2009 so given the short length of selloffs, future sell signals will probably be shorter lived to capture any quick downside gains. Note, that both significant corrections in May 2010 and August 2011 occurred over just a handful of days. So it was only a question of order of magnitude of the selloff rather than the number of days it took for the market to fall.

That said, regardless of whether the model is on a sell or cash signal, hold your stocks and keep your stops at the same levels since the best stocks can buck weakness in the market. And there is nothing wrong with taking yourself off margin during a sell signal.

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