MLR - PMP 8/18/14

Published : August 18 2014 at 8:40 ET

The major market averages finished close to breakeven on higher volume. They were up initially then sold off hard intraday due to news that tensions between Russia and Ukraine were escalating. Even though tensions have eased as of this writing, President Putin has a tyrant's mentality so could continue his aggressive ways against Ukraine which remains a formidable force so may not take Putin's bullying tactics lightly. A report showing economic recovery in the Eurozone is also potentially derailing added to evidence that quantitative easing is not working as planned in Europe. Indeed, markets in Europe and the UK are typically 8-9% or more off their highs but now attempting a weak bounce. Money continues to flow into treasuries driving yields lower.

MDM moved to cash, closing its buy signal about breakeven. Given anemic leadership and the large number of distribution days which were followed by weak upside volume as the market bounced off its lows, it is better to move to cash as the model can always go back to a buy signal which it may do as early as today in this quantitative easing environment. Indeed, it is sometimes better to take out "selling" insurance by switching out of a buy signal in the event of a more serious correction. But in this QE market with its weak but relentlessly persistent uptrends, frustrated fund managers having yet another year of missing their bogeys, underperforming the major averages, are quick to buy back into a market that has a minor correction, thus adding additional support to a market already supported by QE.

Futures are up sharply this morning on news that the ECB is making Euro 250 billion available to European banks. With the NASDAQ finding resistance at the highs of its prior range while the S&P 500 is finding resistance at its own 50-day moving average, the market is in a position to clear near-term resistance if this morning's gap-up opening holds. If it does, then Friday's action served as little more than a shakeout, and investors should be looking at stocks that are at or near optimal, low-risk entry points as vehicles for a possible continued market uptrend. The action over the next few days will likely be critical in this regard.

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