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MLR - PMP 7/17/14

Strong economic news out of China, the announcement of a partnership between Apple (AAPL) and International Business Machines (IBM), and an earnings-related gap-up in Intel (INTC) all served to fuel a strong gap-up move in the major market indexes the prior morning, which, like the gap-up move on Monday, churned around all day on mixed volume. The NASDAQ Composite Index traded higher volume thanks to INTC but logged what looks to me as a big churning and stalling day as it closed near the lows of the daily trading range. Both the NASDAQ and the S&P 500 Index have logged several distribution and churning days around the peak over the last eight trading days, and with leading stocks getting hit with selling over the same time period the market remains in a sluggish, somewhat weak state as it chops and slops around.

If the major averages snap out of their current state and are able to move to new highs in the coming days, the Market Direction Model would likely switch back to a buy from it's more conservative cash position as quantitative easing remains alive and well. This morning, however, futures are back down as global tensions in Israel and the Ukraine percolate once again.
Indeed, it has been frustrating to watch markets continue to resist any meaningful corrections despite major damage done to leading stocks as well as a pile up of distribution days in major averages. This is not your father's stock market. Nevertheless, it has paid off handsomely in times past when markets did decide to have more severe corrections such as the flash crash of May 2010 and the highly volatile second half of 2011. Thus investors can reduce volatility and risk by staying on the conservative side in the short-term while remaining nimble and flexible enough to switch back to bullish mode when uptrends resume.

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