MarketWatch had a feature story titled “Some managers know how to let you sleep at night,” which identified 5 no load funds that allegedly capture much of the gains in good times without suffering devastating losses in down markets. It’s likely you have heard of most them, and I have even used some when appropriate. They are good performers, not necessarily in the top, but very solid when used at the right time. The article makes you believe that these 5 can be held without regards to market direction, which, of course is a fallacy. Additionally, some have not been around during the past bear market, so they are not necessarily battle tested. Take a look at a long term chart: As you can clearly see, the performance varies widely with FAIRX leading the pack. My point is that these funds could be worthy of your consideration (neither I nor my clients have currently any positions) when the market gets out of the doldrums and the trend heads back up. However, if we are crossing into bear territory, I suggest, as I always do, that you get out of your positions and move to the safety of the sidelines (money market). The simple fact is that in a bear market all equity funds will decline, some more some less. As many have learned during the 2000 to 20003 disaster, there is no safe haven other than cash

With Wall Street’s big guns having returned from their summer vacations, it was time again to push the buy and sell buttons. Today, despite low volume and short covering, the sentiment was bullish. Our Trend Tracking Indexes (TTIs) are now positioned in regards to their long term trend lines as follows: Domestic TTI: +3.65% International TTI: +2.51% I can no longer ignore the fact that the international TTI has now moved solidly above the line so, effective tomorrow, Wednesday, I will move back into that market. Depending on portfolio size, I will use an allocation to broadly diversified international funds/ETFs of anywhere from 15% to 30%. As always, I will set my trailing sell stop at 7%.

Continued bad housing news, and lingering credit problems along with dimmed hopes for an interest rate cut, pulled the major market indexes lower. Our Trend Tracking Indexes (TTIs) retreated as well but are remaining above their respective trend lines as follows: Domestic TTI: +3.34% International TTI: +1.59% Today, I ventured back into broadly diversified international funds, as announced yesterday. Because of the proximity of the International TTI to its trend line, I will use the 7% sell stop point of my new fund holding as my exit strategy. This will allow me to give the market some room to move and will hopefully avoid a whip-saw signal in case the International TTI heads south again. I will keep you posted as to any changes.

My latest No Load Fund/ETF Tracker has been posted at: http://www.successful-investment.com/newsletter-archive.php Sharp downside action caused by a weak payroll report pulled all major indexes lower, but the current Buy signals were not affected. Our Trend Tracking Index (TTI) for domestic funds/ETFs moved lower to +2.91% above its long-term trend line (red) as the chart below shows: The international index also remained +0.60% above its own trend line, keeping us still on the positive side. For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

After the markets meandered for most of the day, I liquidated 2 positions that had dropped off their highs by -7.5% as announced yesterday. Of course, I had no idea that my trades were so influential that they confused Wall Street traders and promptly ignited a strong rebound rally during the last hour. While all major indexes closed higher, it was clearly a party of one, as the Dow was the king of the Street for today. If this feels like a roller coaster to you, you are not alone. Increased volatility may stay with us for a while and is an indication that the market is in a shakeout mode. That simply means that future direction is uncertain and a break either way can occur at anytime. For tomorrow, none of my other sell stops have been triggered, so I will watch and wait.

Reader Nitin sent in a link to an article called “Protecting the Investments of the Bad Investor,” which was recently featured in Yahoo Finance. I agree with the overall premise that there are many investors who are not doing well, getting below average returns by buying, holding and selling at the wrong time. The article goes on to state that “the Pension Protection Act of 2006 is encouraging increased use of asset-allocation funds, such as target-date and lifecycle funds, particularly as defaults in defined-contribution plans.” I guess the idea is to protect investors from themselves, and their untimely decisions, by establishing a group of “default” investments. What that means is that someone decided that a default investment will do better than you could do on your own. This may be correct in some cases, but the problem is with the default investments, which are pegged to be asset allocation funds like target-date and lifecycle funds. However, the study admits that asset allocation funds severely under-perform equity funds, but they “have prevented significant losses due to fear-based selling.” Huh? I am simply dumbfounded by the fact hat one study can come up with that much garbage. Are you now supposed to invest in underperforming asset allocation funds, which then will lose as much or more in a bear market scenario? Translation: Get less of a return but lose more since the obvious conclusion is to Buy and Hope through any type of market environment. Don’t believe it? I wrote the article “Do Lifestyle Funds Provide More Security” in early 2003, just before the bear market ended. It clearly confirms that Lifecycle and other allocation funds suffer just as much in a bear market scenario as equity funds but, in a bull market, you don’t get nearly the upside potential. The article goes on to make other moronic statements like “this analysis shows that asset-allocation funds deliver what they promise -- lower risk, no switching and real returns for the investor.” Suuuure; and I have some subprime loans I’d like to sell you for top dollar… Let me make it clear again: The biggest danger to your portfolio is the re-occurrence of another bear market and not whether you are in the best performing fund during a bull market. If you can avoid the bear by being safely on the sidelines, your investment returns will beat just about any equity mutual fund, index or stock that was held to oblivion.

My latest No Load Fund/ETF Tracker has been posted at: http://www.successful-investment.com/newsletter-archive.php Today’s sharp sell-off brought several of our sell stops back into play. We will liquidate those positions on Monday. For more details, please see the above link. Our Trend Tracking Index (TTI) for domestic funds/ETFs fell but still remains +1.45% above its long-term trend line (red) as the chart below shows: The international index has now moved to +1.21% above its own trend line, as you can see below: For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

Yesterday’s rebound, which recovered just amount all of last Friday’s losses, was a welcome relief but huge one day market moves, whether up or down, are rarely indicative of a trend. As I mentioned last Friday, I liquidated a few volatile positions with sector and country orientations. The sell stop points were clearly penetrated and, if this is in fact only a temporary bounce, we’ll be glad to have taken some volatility out of our portfolios. If this rebound turns out to be the resumption of the long-term trend, we’ll be looking for other opportunities. Right now, I prefer to err on the side of caution. Our Trend Tracking Indexes (TTIs) recovered as well and remain above their long-term trend lines as follows: Domestic TTI: +2.61% International TTI: +2.53% Most of my domestic and international positions have stayed above their sell stop points, and I will hold them until market activity tells me otherwise. All eyes are now on the Fed for any hint that they are willing to throw an assist should the markets need it. Well, even the “Donald” (as in Trump) has thrown his name into the game on CNBC as he called for a rate cut. Hmm, he just can’t stand not being in the limelight.

Last week, reader Craig pointed towards my previous observation that gapped upside openings will always be closed, which translates into a market pullback. The odds of this happening are extremely high, although I have not read any study confirming that this is a 100% occurrence. Let’s take a look again at an enlarged portion of the Domestic Trend Tracking Index (TTI): As you can see, the lower arrow shows a gap that was formed during the first quarter of 07. While the markets retreated a few weeks later, the gap was never completely closed. This is in contrast with a more recent gap (upper arrow) which was closed during the sharp pull back 2 weeks ago. I have seen thousands of charts where these types of break-away gaps have been closed, the timing, however, has always been uncertain. Sometimes it happens quickly, as in the case with the upper arrow, sometimes it may take months. How can this be of value to you? Recent gaps allow you to look at market behavior in a different light. When a correction occurs, such as we’ve seen over the past few weeks, you can look at the TTI chart and hold off making any sell decisions until the gap has closed. In many cases, this will also coincide with our sell stop discipline. Many times, after a gap has been closed, the markets will resume their previous trend, which was to the upside. If the original gap in the above chart gets closed, that will put us at a very critical juncture in that most likely the trend line (red) will be pierced to the downside. However, there again is the chance of a rebound. That is why I evaluate the breaking of the trend line to the downside for a few days to be sure the break holds before issuing an all-out Sell signal. Again, you need to be humble and accept the fact that there is no investment method which will get you in and out of the market correctly 100% of the time. However, having a plan that attempts to keep you away from the devastating impact of another bear market (whenever it occurs) sure beats the buying, holding and hoping approach that has proven to be a portfolio killer.

Today’s steep sell off (based on the continued spread of the subprime virus) did not affect any of our sell stops. Since I had liquidated some of our more volatile holdings in some country and sector funds last week, we are left with positions that have been fairly stable. Most of them have come off their highs by 4%-5%, which means there is still a little “play room” until the 7% sell level gets triggered. Our Trend Tracking Indexes (TTIs) rallied early in the week and are, as of today, positioned in regards to their long-term trend lines as follows: Domestic TTI: +2.54% International TTI: +3.07% We will hold all positions subject to our sell rules.