11-18-11 Close Comments

The NASDAQ closed below the lows of its follow-through day which was on October 18 generating an S1 sell signal. This brings the market exposure count to zero. Additionally it turns the Buy Switch off. The buy switch is turned off when the distribution count is equal to or larger than a full count (6) and the exposure count goes to zero. This is a signal to move the portfolio to cash which I had already done on Thursday. We now wait for a new rally attempt before we can move to the long side again. This rally is over. The events that can turn the buy switch back on are 1) a new follow-through day or 2) a close above a marked high (2753.37).

This second condition is a rally fail safe condition where the buy switch goes on if the market makes a higher high without a follow through day. MarketSmith marks chart highs and lows when the intraday high or low is the highest high or lowest low within a 9-day look back or 9-day look forward window. The high of 10/27 was the last marked high.

Now I believe the evidence is mounting that we have reached the 200-day moving average and possibly failed that level indicating that this was a bear market rally and that the next wave down in an ongoing bear market has possibly begun.

Mike,

Does the market model ever go short, or is it a long stock/long cash function only?

[QUOTE=adam ali;18670]Mike,

Does the market model ever go short, or is it a long stock/long cash function only?[/QUOTE]

adam,
The Market Model does not currently go short. I asked the maker of the model this very question myself. They are considering attempting to extend the model to the short side but have not done so yet. I almost have the model put into excel. I may take a stab myself with a short side extension.

Good - look forward to your findings.