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MDM - Intraday market update July 11, 2011

The Federal Reserve has two choices as they see it: default or devalue. And the Obama administration has warned that failure to raise the debt ceiling would be catastrophic. Alan Blinder, the former vice-president of the Federal Reserve, has seconded this view.

The bounce in the markets over the last few weeks has occurred in the face of negative news such as renewed debt issues out of Europe. Then last Friday, the market clawed its way higher in the face of a disappointing employment report. Today's negative debt news out of Europe, and the failure for Republicans and Democrats to reach an agreement on the debt ceiling issue is rattling the markets lower. The dollar, being the safe haven play, is moving higher.

Given the news of today, market weakness is not surprising. That said, the market is most likely pricing in some form of quantitative easing to come as indicated by its behavior over the last few weeks. While it could be argued that the implications of further QE are not good for the general health of the markets in the long run, recent price/volume action of major indices and leading stocks is indicating buying pressure. The model measures buying and selling pressure over a span of time so it can be placed in proper context.

As we have seen, 2011 has been fairly trendless, so position size accordingly knowing that the risk investing brings in such a challenging environment is higher. The pyramiding strategy we sent out in a prior report can be particularly useful in such environments.

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