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MDM - Model moves to CASH/NEUTRAL on June 14, 2012

The MDM has switched to a cash signal. Too much uncertainty and multiple cross currents abound even on a short term basis here. Greek elections this Sunday then central banks intervening if necessary are two prime examples.

A period of 'chop and slop' is likely at this juncture.

We close the trade out at near breakeven (a slight gain) on the NASDAQ Composite.


Bullish and bearish arguments follow, but while reading, keep in mind that new opportunities often begin when least expected, such as the period leading up to April 1980, when many bullish and bearish arguments co-existed, along with much frustration in the markets. As Michael Platt from Jack Schwager's Hedge Fund Market Wizards describes the trader's mindset after experiences losses:

"You're not in the mood to put [on any new trades]. Then the elephant walks past you while your gun's not loaded."

It is thus wise to always keep an eye on markets.


While the model does not use fundamentals but rather the price/volume response in major indices and leading stocks, here are the salient bull and bear arguments FYI:

In the camp that argues for market strength ahead, central banks around the world are acting to mitigate the global crisis:

=While the market wanted to hear that the pace of quantitative easing would accelerate sooner than later, the U.S. Federal Reserve Central Bank and European Central Bank indicated they will step in if needed.

=China's central bank lowered key lending rates.

=Australia said they are willing to step in if needed.

=Spanish banks will get bailed out.

=Since markets are forward looking, an anticipated change in leadership in the U.S. could prompt a rally. Thus a Romney Rally could be similar to a Reagan Rally that occurred in April 1980. The Wisconsin election this Wednesday shows we may be at an inflection point in terms of the public's tolerance of large deficits resulting from public employee benefits/retirement which are by far the largest part of federal and state budget shortfalls. In 1980, the markets ralllied from April to November then corrected sharply.


In the camp that argues for market weakness ahead:

=UK and more than half of Eurozone countries are in recession. Since markets correlate more than ever before (unlike 20 years ago when US was far less correlated to European markets), this could continue to put a weight on US markets.

=Gold pulled back and is still well within its base, underscoring that market sees quantitative easing (QE) in its current state as insufficient.

="Sell in May and go away." Going all the way back to July 17, 1974, the odds of follow through days (FTDs) in May and June succeeding were the lowest. July and November were only slightly better than May and June.

=Spanish bailout solution is merely temporary. PIIGS problems within the Eurozone remain unaddressed. When will the next domino fall?

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