IBD Calls Market In Correction

With six distribution days on the Nasdaq Composite in recent weeks and poor action in leading stocks, IBD changed its market stance from Uptrend Under Pressure to Market In Correction.  After two years of solid returns, following IBD's market calls using the Qs resulted in a return of less than 6% as of yesterday's close as compared to a return of 25% for the Qs from 12/31/2009.  This is not exactly the kind of performance you would like to see, but the fact is that 2010 was not only volatile, but traded in a range for much of the year, which is why many trend following strategies underperformed.  That doesn't mean we won't see a period of outperformance in 2011.  The fact is that it was a positive return and traders and investors would do well to be cautious when the folks at IBD are cautious whether you agree with their overall approach or not.

For those using the IBD strategy, it is prudent to wait for a 1% move in the direction of the trend on increasing volume, an additional trend follow-through, to confirm the market call before entering a trade.