Weekly Commentary

August 18, 2010

Market trading volume has reached a nadir for the year, with the three lowest volume days of 2010 having all occurred during the last week. Except for one large gap down to open trading following the Fed announcement, S&P 500 price action has been bound between in a 30 point range above and below the critical 1100 level over the past couple of weeks; while the low trading volume would seem to indicate that market participants are unwilling to add more risk to their portfolios currently. This recent market weakness on the heels of negative internals, price, and relative strength has caused the Stadion Investment Model to signal for a higher risk market environment. As we mentioned in our last update, overhead resistance established at the June high level was proving to be a solid barrier to positive price performance. The combination of the market's inability to break through that resistance and the negative reaction to the Fed's acknowledgement last week that there would be slower economic growth than expected in the near term, caused a large price gap to occur prior to the opening on August 11. With the gap down and ensuing instability in the market during that trading session, the Stadion Investment Model, as designed, dictated our sell criteria. Most of the indicators within the Stadion Investment Model are near their signal lines, meaning that if a positive short term trend is established with confirming market internal data, we can quickly begin to assess the strength of the market, and react as necessary. If however a positive trend fails to develop, we will remain in our defensive posture until the Stadion Investment Model signals a higher probability of positive price performance. - SMM-082010-173

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