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

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

A better than expected unemployment report pushed the major indexes higher with the S&P; 500 gaining 3% for the week.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has now crossed its trend line (red) to the upside by +4.91% keeping the current buy signal intact. The effective date was June 3, 2009.



The international index has now broken above its long-term trend line by +5.67%. A Buy signal was triggered effective May 11, 2009. We are holding our positions subject to a trailing stop loss.



[Click on charts to enlarge]

For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

In an almost identical performance from the prior trading day, the early rally attempt on Wednesday was rebuffed, and the major indexes ended up essentially unchanged.

For the time being, it seems that selling sets in when the S&P; 500 moves to its resistance level in the 1,125 area. Even decent economic news could not prevent the slide.

Maybe it’s the calm before the storm on Friday when the Labor Department issues its nonfarm payroll report. Economists predict a loss of 75,000 jobs in February in part due to the winter storms.

If this number comes in much better, we might see another attempt to break through the S&P;’s resistance level. If it comes in much worse, we could see more acceleration to the downside. Again, there is no reason to make quick, irrational decisions; let the market come to you and execute your sell stops if/when necessary.

If you believe the heavy hitters of the investment world, gold could be the next bubble as “Soros Signals Gold Bubble:”

George Soros is helping drive up gold prices by doubling his bet in a market even he considers a “bubble” as Goldman Sachs Group Inc., Barclays Capital and HSBC Holdings Plc predict more gains before it bursts.

In a Jan. 28 Bloomberg Television interview, the 79-year- old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of “irrational exuberance” in financial markets three years before the technology bubble burst in 2000. The Standard & Poor’s 500 Index rose 89 percent in the period. Buying at the start of a bubble is “rational,” Soros said.

What is rational to George Soros with his deep pockets may or may not be rational to you. While a bubble may indeed form in the future, the path to bubble level will not be a smooth one and very likely be interrupted by violent price swings in both directions.

So don’t be lured by his assumptions, which may very well come true but could bankrupt you if you plowed a large portion of your assets into gold. Treat gold like any other investment by using a trailing sell stop to limit downside risk.

Getting stopped out does not mean you can’t reenter again, just be aware that gold can be extremely volatile and caution is advised despite its long term potential.

Disclosure: We currently have limited positions in GLD.

I came across this article titled “The 10 Rules You Need to Know Before Investing in ETFs.”

While most are well known, I was surprised to see rule # 8 “Have an Exit Strategy;”

What would cause you to change your mind and re-evaluate your position? Is the reason you purchased the ETF still valid? Have the fundamentals changed? Have the technicals changed? “Consider the use of a stop loss, even a mental one that causes you to re-evaluate your holding,” says Jergovic.

I applaud this writer for including one of the most elemental safety nets of investing in this article.

Here’s rule # 10, which I want to hone in on a little bit:

Separate Your Serious Money From Your “Ice Cream Money.” Know the type of money you are investing in ETFs. Never speculate with serious money you cannot afford to lose, says Jergovic. “When investors speculate with serious money and invest long-term with ice cream money, meeting objectives becomes problematic.”

This is a very important topic, which I have discussed many times, but not written about. There are some investors with the urge to do big things, like the equivalent of hitting a home run in the investment arena.

Actually, I have clients like that. They have divided their money into two pots; a small one, which is called their play money and a larger one, which I manage, which I refer to as their serious money.

With that small pot, they do the wildest things in the market you could ever imagine, hoping for a big hit, while at the same time satisfying their gambling instinct.
There is nothing wrong with that if you are so inclined. Their serious money is invested conservatively with clearly defined risk as per the trend tracking principles.

Some investors I know prefer doing their own thing and are managing both pots. Therein lies the danger in that the goals for each can become blurred and overlapping with the result that a clear separation can’t be maintained.

If do your own investing, and you are facing this situation, be absolutely clear as to which account you are dealing with so that you never become tempted to do crazy things with your serious money.

“Stupid Investment of the Week,” mentioned some good mutual funds with a bad ride in 2008. Here are some highlights:

In a few weeks the worst of the stock market’s meltdown will fall off the short-term performance charts. In its place will be all of the rally, and one-year performance numbers that in some cases look downright showy.

One mutual fund where that is clearly the case is Masters Select Equity Fund (MSEFX), an offering with a good reputation but a bad ride that should have investors wondering if they’ve gotten what they paid for or if they own the Stupid Investment of the Week.

It’s not that MSEFX qualifies for the Stupid Investment of the Week; what qualifies for that distinction is holding any equity fund through a bear market.

MSEFX performed just like any other equity fund when the bear market of 2008 struck–it got clobbered. Let’s take a look comparing this fund to the S&P; 500:




The red arrow shows our domestic sell signal of 6/23/08. If you followed this sell recommendation, it would not have mattered that this fund performed worse than its peers or the S&P; 500; you would have been safely on the sidelines.

To me, the “Stupid Investment of the Week and the Decade” is holding any equity fund when the trend turns bearish and not whether a certain mutual fund “only” lost 40% while another one dropped 50%. This type of sick “outperformance” thinking permeates buy and hold where a “lesser” loser is considered a winner.

Disclosure: We have no holdings in the funds mentioned in the article.

Reader Jim pointed to an article titled “Bracing for Higher Interest Rates.” Here are some highlights:

That was the unmistakable message from the Federal Reserve last week when it increased the discount rate, the rate it charges banks for borrowing reserves. Although the move came sooner than many expected, it was a healthy step toward more normal conditions and a sign the banking system is healing. The Fed stressed that the move doesn’t mean any imminent rise in the more important federal-funds rate. Despite the soothing words, it’s a clear warning that near-zero interest rates won’t last forever, and that the Fed is prepared to act when necessary to raise rates.

This has significant implications for investors, since markets anticipate events. Assuming we are in the very early stages of a credit-tightening cycle, investors need a whole new strategy for a world of rising interest rates.

Reader Jim came to the following conclusion:

1. The dollar should increase in value
2. Gold should lose value
3. Junk bonds should lose value

So the trend is up for UUP, down for GLD and JNK. What you think?

While I agree that eventually higher interest rates will be in the cards, the timing part is the big unknown. Currently, we are stuck in a severe deflationary scenario along with a weak economy, both of which do not support higher interest rates.

Of course, the potential always exists that we end up in a “stagflation” environment, where economic growth stagnates and inflation rises along with interest rates. Articles like the above one make a good case, but that does not mean you need to adjust your investment strategy.

The key is to go with the trends as they are right now and make corrections if and when they change and not before. Why? Because you’re basing your decision on guesswork of what might be happening and not on facts as they are right now.

In Jim’s example, the major trend for UUP, JNK and GLD is up, and if you have positions wait until the trend turns before liquidating or, better yet, let your trailing sell stop be your guide as to when to get out. Wild guesses as to what may or may not be happening will inevitably lead to investment losses.

Disclosure: We currently have holdings in the funds discussed above.