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MDM - Market brief November 17, 2011

As we wrote yesterday, the model is looking for a constructive pull back in leading names and major indices if it is going to issue a buy signal. However, yesterday's hard selling that occurred in the last hour of trade caused most names to pull back sharply, pushing the model closer to a sell signal. That said, should the market stabilize here and move higher along with key names, the model could potentially switch to a buy signal.

Fitch, a prominent bond rating firm, sent out a word of caution about downgrading its outlook on U.S. banks unless the debt issues in the Eurozone are resolved "in a timely and orderly manner." But Moody's then downgraded credit ratings on ten German banks and Eurogroup head Juncker made cautionary comments concerning German debt levels making it seem less likely that resolution would occur "in a timely and orderly manner," thus markets sold off.

The model continues to look for buying or selling pressure in key areas. In the meantime, the tug-o-war between the uptrending effects of quantitative easing vs. negative headline news continues to play out. Resolution one way or the other will eventually occur, and could occur sooner than later, but for now, it is best to sit on the sidelines as concerns ETFs. It is during such times of "doing nothing" that minimizes one's losses. The post May 2010 flash crash was a good example of such a period for the model which managed to stay on the sidelines longer than normal after profiting handsomely in inverse ETFs from the flash crash.

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