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The bailout package was rejected yesterday and, with Dow being down some 300 points as the announcement was made, it dropped another 300 points within seconds thereafter.

Rebound attempts failed and all major indexes suffered steep losses not seen since the last bear market of 2001. The S&P; lost some $700 billion in market value and, I hate to say it, the portfolios of the Buy & Hope community got hammered big time.

The S&P; 500 is now down almost 14%, just for this month, and anyone holding on to long positions should have learned this lesson: When in bear market territory, the wisest move is to stay on the sidelines in cash until the trend reverses and turns bullish again.

I’ve been harping on this for the past 20 years and many readers have followed this advice and have written me that they now have a hard time hiding that smug look on their faces. No, I am not gloating here but merely pointing out that many investors continue to be mislead by Wall Street’s self serving investment approach that promotes the senseless “you always have to be in the market” attitude.

Bear markets have a way of bringing back some reality that seems to get swept under the table during bullish party times. I am repeating myself: There are times to be in the market and there are times to be out of it. The latter has applied for the past few months, since our last domestic sell signal was issued on 6/23/08.

Our Trend Tracking Indexes (TTIs) have followed the markets lower and are now positioned relative to their trend lines as follows:

Domestic TTI: -6.66%
International TTI: -16.37%

Sure, bear markets, as we’ve seen over the past few weeks, have tremendous power to bounce higher, but so far, the attempts have all been head fakes.

I have no idea if we will see a rebound rally in the near future, but nothing would surprise me. Right now, I am watching this carnage from the sidelines with my assets, and those of my clients, safely tucked away in a US Treasury only fund waiting for better opportunities.

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Comments 1

  1. Well I’ve followed your advice and column all year and its saved me a huge chunk of my portfolio.

    I can’t help thinking though, that if everyone did what we were doing the markets would be very unstable, with even wilder swings than what we are seeing now. I’m not sure the “buy and hold” mantra serves only wall street interests.

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