Unless there is a reversal by the close, follow through days in both NASDAQ Composite and S&P 500 have triggered a buy signal in the model. This bounce is partly motivated by QE2 (quantitative easing, part 2) thus markets could continue to trend higher even in the face of the negatives that have occurred over the past two weeks which has set in motion the view that the market has topped. Such negatives include leading stocks that got hit hard, news out of Egypt, and municiple bond news. Thus, the general markets have had a few ugly down days on significant volume. But the fact that the market has shown resilience in the face of these challenges is an important clue.
The question on some people's minds might be why did the model switch so quickly from a sell signal to a buy signal? The answer is that, although rare, whipsaw environments do occur. Naturally, they are not pleasant. The model will have its difficult patches. If you examine the model's long term results, you will see there have been unusual periods where the model issues a series of false signals, and thus would account for any of its drawdowns. This can make following a model challenging.
What keeps us excited, and patient, is the knowledge that such unusual action always comes to an end and often precedes the next big move. In the meantime we focus on the self-discipline to stay with the signal and make absolutely sure we don't miss out when a sustained trend finally comes. And in the meantime, we will continue to email out actionable stock ideas on the long or short side in real-time.
Here are recommended ETFs:
IWM (Russell 2000)
TNA (Russell 2000)