Major averages fell on substantially higher volume. The major averages undercut their lows. While follow through days since 2000 for Investor's Business Daily have failed, we are in the age of QE which has invalidated many prior observations. The price/volume action of major averages and leading stocks carries the heaviest weighting thus while the market endures volatility, the economy is fragile, recession is clearly evident in the UK and in Europe, and a dearth of economic reports showing recovery are keeping Bernanke from saying he will start tapering on any particular date. All Bernanke can hope for is that the economy does indeed recover so he can start slowing the pace of quantitative easing (QE). In the meantime, the markets may find their footing once again and head higher. That said, should the markets and leading stocks continue lower, the model will switch out of its current buy signal into cash or sell signal, depending on the degree of selling pressure across the major averages and leading stocks.
Leading biotech and home building stocks got hit hard in the sell off. This pushes the model very close to a sell signal, but the floor that QE provides puts the model into a tipping point where it is close to switching but also close to staying on a buy signal.
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