MLR - UVXY/TVIX Model and Market Direction Model Q&A

Published : September 14 2012 at 8:28 ET

Q: Good call on the latest signal issued by the UVXY/TVIX model. It looks as if the additional fine-tuning is paying off. Is the model still in beta?

A: The model is still in beta but is nearing the final phase. There was a refinement made on 05-09-2012 which did not prove out, then further testing was done thus no signals were issued between 06-14-12 and 09-05-12, which culminated in the present version of the model as of the 09-05-2012 signal. That said, pay close attention to the risks associated with this highly volatile model that we outline in every UVXY/TVIX report we send out.


Q: When MDM switched to buy on Aug 14 I did not go long immediately at the time, because of the choppy action in prior weeks. Now the QQQ rose some 3.7% since then. However, I was wondering - based on the QE3 launch and the German supreme court decision Wednesday - whether a long entry at these levels is still an option or if it would already be considered too late?

Moreover, you commented a few days ago that GLD and SLV have safe entries on pullbacks to $159,73 and $29.53 only. However, yesterday both rose on volume and the 50 DMA is crossing the 200 DMA. Do you therefore consider Gold and silver as buyable despite these high levels (you mentioned pocket pivots on both)?

Finally, if I may ask can you guide me to any reports/guidance you may have written regarding margin trading or in what environment you and Mr Morales would consider margin (assuming you use it at all)?

A: Given the strongly bullish market environment, one could initiate a position here. But know that one is buying late so the additional risk you take on should be accounted for in terms of your position size.

As for GLD and SLV, precious metals rallied strongly on the news as all the 'QE' ducks seem to be in a row with both barrels firing from the European Central Bank and now the US Federal Reserve. Both gold GLD and silver SLV ETFs had pocket pivot buy points, their third technical buy points over the past month as each has moved sharply higher during that period. Members should be well-invested in precious metals by now based on this string of buy signals over the past month. As with the MDM, one could initiate a small position in GLD or SLV at these higher levels knowing they are taking on additional risk.

As for trading on margin, that entirely depends on one's risk tolerance levels. Gil Morales will go on full margin quickly even in difficult market environments because that's his signature style. He is also very quick to cut his losses should the trade fail. My style is a slower method of buying leading stocks at smaller position sizes. If enough stocks hit my buy signals that are actionable, I will find myself on margin. If the environment is sufficiently bullish, I will find myself fully invested (200% long) on margin.

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