MLR - PMP 6/14/13
Not surprisingly, the market rallied following a successful retest of their 50-day moving averages by the S&P 500 and Dow Jones Industrials Indexes. In prior corrections, most which have been minor, investors are conditioned to buy the dips and support comes in at the point where the indexes look the bleakest.That said, two indicators (Coppock and Eureka) have not confirmed this follow through day, plus the track record of follow through days in June have been poor for various timing systems including Market Direction Model.
Thus, the Market Direction Model will switch to a buy signal as early as today only on the condition the general markets continue to rally after yesterday's follow through and are supported by healthy action in leading stocks. In yesterday's market, the S&P 500 was up sufficiently on higher volume compared to the day before qualifying it for a follow through day. Plus, quantitative easing is firing on full across major central banks.
Should the model move to a buy signal, it would switch most like to a cash or sell signal should the S&P 500 move below yesterday's low, which would take it below its 50-day moving average, though this action would have to be also be accompanied by weak action on behalf of leading stocks. Thus the entry risk at current levels in such a situation would be 1.54% on the S&P 500 should the S&P 500 open where its futures are currently trading, down -0.17% from yesterday's close. Should the model enter after the S&P 500 has rallied some, say 0.3%, this would be additional risk for a total risk of 1.54%+0.3% = 1.84%.
In most cases, leading stocks that have weathered the pullback over the past three weeks and which have shown support at key areas, such as their 50-day or 10-day moving averages or the tops of prior bases may offer the best entry points should the rally continue. Such stocks tend to outperform should the market resume its uptrend.
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