Investment Choices

Ulli Uncategorized Contact

With the international Trend Tracking Index (TTI) having crossed above its long-term trend line by +2.94%, after recalculation yesterday, a Buy signal has been generated effective Monday, May 11, 2009.

The domestic TTI has also moved to within striking distance (-0.49%) of crossing its own long-term trend line to the upside, which may happen next week.

If the domestic Buy signal comes to pass as well, you have a variety of choices as to how to participate:

International Buy Signal

1. If you have a 401k account that is currently sitting in cash, you could allocate a percentage to the international area. Usually, I start with 1/3 of portfolio value and use a 7% trailing stop loss in case this move turns out to be a head fake.

2. If you are not comfortable, you can sit this buy signal out or allocate a smaller percentage. Nobody says that you have to participate.

Potential Domestic Buy Signal

Here you have definitely more choices especially if you followed and set up the SimpleHedge as per my free e-book:

1. Keep your SimpleHedge position as is or increase it to 100% of portfolio value

2. If your hedge is already at 100% of portfolio value, sell the short position and become net long with 50% of your portfolio. If the trend starts to look shaky, you can add the short position back in.

3. If you’ve been out of the market and waiting for this Buy signal, you could allocate 1/3 or more of portfolio value to some of the top ranked funds/ETFs from the most current StatSheet. Remember, the higher the ranking, the higher the volatility; if you’re conservative, drop down a few ranking points on the table.

4. Allocate 1/3 to each the international and domestic arena. Add to those positions if the market moves your way, after you have gained 5% until you eventually become fully invested.

5. Allocate 1/3 each internationally and domestically and fill the balance with small exposure to those sector and country ETFs that are showing strong upward momentum.

6. Use a combination of the above to best suit your risk profile. The goal here is to be onboard those areas with strong upward momentum.

Never ever do any of the above without having an exit strategy in place and actually executing it when the time comes. I personally use a 7% trailing stop domestically and internationally and 10% for sector and country ETFs.

I still believe that the current market rebound is in total disconnect with economic reality. Record unemployment numbers and continuous revisions of job losses do not paint a rosy picture. All this exuberance is simply based on hope that we will be turning the corner in a few months economically speaking and that banks are now on solid footing.

While that is my opinion, it has absolutely nothing to do with my investment decisions. They are based on trends and not on what I think about the fundamentals or the state of the economy.

However, I will use a cautious approach by keeping most of my hedges intact, adding others, but I may use some outright long positions as well.

Contact Ulli

Comments 3

  1. Ulli, I like yourself, appreciate a mechanica approch that removes emotion from the equation. That said, in an atmosphere where 539,000 job losses in a month is hailed as something the mkt gains 164 pts, has your trend following guidance ever previously gone positive in such a poor economic enviroment 6 months out or not as the mkt forecasts.
    There seems to be a total decoupling of reality with the stk mkt. The last 5 year bull run was accomplished with pretty much flat wages for the masses so perhaps what happens on “The Street” has little to do with the real world so just follow the mechanical buy/sell.
    My question is, have yu have gotten previously a buy singal with such bleak economic conditions that are well past a 6-9horizon.

  2. Anon,

    The only time period which comes to mind was a whipsaw we experienced during the last bear market. We received a sell to go to 100% cash on 10/13/2000. This period lasted until 4/28/03, when a major new trend developed.

    However, during that period we experienced a whip-saw from 3/7/02 until 6/12/02, after which the bear market resumed.

    That could be a similarity.

    Ulli…

  3. A whipsaw possibility is like the cost of insurance. The oost of a couple of whipsaw losses is not too big a price to pay and you should recoup those losses when the trend does not end with a whipsaw and keeps moving up.

    Even if this is a bear market rally, there is room for profit if the rally continues until the next sell signal is at a higher level than when the buy signal occurred.

Leave a Reply