Much has been and more will be written about last Thursday’s market debacle during which at one point the Dow had plunged almost 1,000 points, its worst intra-day point pullback ever.

With the Greece debt crisis having been the main cause of the turmoil, is there more downside risk and if so, how much? For some views, let’s listen in to “Citi sees up to 20% correction over Greece:”

Just hours after one of the most bruising sessions for Wall Street, strategists in Europe on Friday painted a poor outlook for rebound prospects in the near term.

Hellerup parts ways with the Citi view of markets reversing by 10% to 20%, at least with regards to the S&P; 500, where he sees maybe a 5% pullback, but the level won’t dip below 1,110 he predicts.

Well, as of Friday, we closed at the 1,111 level and barring a huge rebound on Monday, we may very well sink below that number quickly.

As you know from my writings, I don’t think much of most forecasts, but I do read and occasionally share some of them to see how others interpret current events. To me, after last year’s rally, the risk of a sharp downside correction has clearly increased.

We may have seen all of it last week, or just the beginning. If our domestic TTI remains above its trend line, I can see this pullback being of a more a modest nature. If we break below the line, we will have officially entered bear market territory again, at least according to my definition.

Fundamentally, the ball is still in the court of the Europeans, who have shown anything but a unified front and leadership during the Greek crisis. If there is more useless jawboning and lack of coordinated action to solve the issues at hand, the markets will not like this uncertainty and more sell offs are a possibility.

The potential spillover effect into the other Club Med countries has been well documented and if the Eurozone as a whole, being a major trading partner to the rest of the world, slips back into a recession, all economies and stock markets will suffer.

It’s too early to tell how this will play out, but with last week’s action, I am glad that we have lightened up on our positions, which will enable us to better whether out the current uncertainties.

One reader emailed me an interesting comment a week ago on a topic that I have touched on from time to time. Here’s what he had to say:

Thanks again for all the valuable info. I realize that I need a service such as yours as I continue to make too many mistakes but it is difficult getting past my ego in what I think should happen in the market.

Not only does my education in economics/finance suggests that this market rise has been built upon the sand, its collapse is imminent. Of course I have been thinking that for almost year not unlike some of the famous economists and most of them of course are lousy investors. When my beliefs and training are not congruent with the trend line I seem to get paralyzed with indecision.

We all have views and opinions, and we like to be right about them. It strokes our ego and makes us feel good—it’s simply human nature.

However, when it comes to investing, I have found it’s wise to check your ego at the door and realize, as well as accept the fact, that you will be wrong from time to time, and that the market will behave in a way inconsistent with your thinking.

If you don’t, you will find yourself in the unenviable position of constantly fighting reality as far as market behavior is concerned. The market does what it does without your views and opinions anyway and it is best to accept that reality.

Personally, I try to clearly separate my view of the market from my investment decisions. While I have voiced an opinion in my writings somewhat similar to the reader’s above, my approach, as to whether to be involved in the market or not, is based on different criteria.

I have learned that there is no one person, entity or computer system able to crunch all of today’s news and come to a conclusion as to what the major indexes will do tomorrow or next week.

That’s why I think it’s an exercise in futility to waste any energy on trying to outguess the market. It’s easier to follow the trends and hop on board when they are in your favor and get off when your sell stops (or trend lines) indicate you do so.

Sometimes, not always, education can get in the way of keeping things simple. I have had conversations with readers well educated in the investment field, who were lousy investors simply because “they knew they were right.”

Humility is not a trait found on Wall Street, but it behooves you to shift your thinking and acknowledge once and for all that the market is far bigger than you are. Humbly accept your profits when you make them, be glad that you were able to sidestep a bear market when you did and accept the occasional whip-saw when it occurs.

Consistent income generation has always been a hot topic. For some thoughts, let’s listen in to “Preferred stock: Good income, but it’s not guaranteed:”

Preferred stock combines some characteristics of common stock and of bonds. Like bonds, preferred shares pay a set amount of cash each quarter or year. And, as with bonds, owners of preferred stock have a higher claim to the company’s cash than do holders of common stock. Specifically, a company must pay all the dividends owed to preferred stockholders before paying any dividend to common stockholders.

But the trouble with the iShares preferred stock ETF is that it’s heavily concentrated in financial stocks, says Kenneth Winans of Winans International. “It’s essentially a financial preferred,” Winans says. Investing a large portion of your portfolio in the financial industry can expose you to outsized risks, as preferred stock investors learned during the financial crisis. “I’m scared of the banks,” Winans says. “I still feel many haven’t come clean.”

Sure, while it’s a valid concern whether banks have come clean (in my view they have not) or not, it’s an unknown just like when interest rates will have to move higher.

What it comes down to is timing. You can make a decision based on fundamentals and may be right, but it may take years to prove that you were correct. My preference is to look at the technical aspects and take advantage of the trends until they end for whatever reason. That takes the guesswork out of the decision making process.

In the case of PFF, let’s look at a 2-year chart:

The trend is still up and, in fact, PFF currently has moved above its long-term trend line by +5.44%. It’s been on a fairly steady ride since May 09 and had its worst pullback on 11/3/09 when it came off its high by -8.06%. In other words, it did not participate in the other market retractions we’ve seen in the last year to any worthwhile degree.

Sporting a yield of over 7%, it may be worth your consideration. However, it’s not a buy and hold proposition, you need to follow the trend and implement a sell stop discipline. PFF may look good right now, but you can’t be complacent owning it, you have to be prepared to exit if the markets head south again.

Disclosure: We have no holdings in PFF

My latest No Load Fund/ETF Tracker has been posted at:

http://www.successful-investment.com/newsletter-archive.php

One of the worst intra-day market swings gave the bears some long hoped for ammunition. The major indexes surrendered all gains for the year.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has now crossed its trend line (red) to the upside by +1.52% (last week +4.41%) keeping the current buy signal intact. The effective date was June 3, 2009.



The international index broke below its long-term trend line by -2.69% (last week +3.89%). A Sell Signal was triggered effective May 7, 2010. We are no longer holding any positions in that arena.

A picture is worth a thousand words, even when the picture represents an ugly day on Wall Street. With the Dow being down almost 1,000 points at one time, losses were cut sharply during the last hour of trading.

Sure the Greek contagion was at the center of attention, but it appears that the latest news reports were not enough to create an outright panic.

Rumors of an incorrectly entered trade by a trader (working for a major firm), who mistyped a letter on a financial derivatives trade, may have very likely contributed to the extreme downside action by subsequently triggering other sell orders as preprogrammed machines were suddenly in charge. I’m sure we’ll find out more details as they become available.

Nevertheless, it was a down day, although I don’t give that much validity to a one-day wonder, whether it happens to the upside or the downside. As mentioned in yesterday’s post, we liquidated our emerging markets positions early this morning before the sell off stamped kicked into high gear.

Several other sell stops were triggered, and we will liquidate those tomorrow, unless the market stages a sharp rebound. At the same time, downside action was enough to trigger an outright sell signal for our International Trend Tracking Index, which covers “broadly diversified international funds/ETFs.”

The international TTI has now moved below its long term trend line and into bear market territory by -1.48%. All holdings in that arena should now be sold, although we no longer had any positions.

The domestic TTI resides still above its own trend line by +2.72%. I will post the updated charts tomorrow.