Now 7 ETF Model Portfolios You Can Use – Updated through 8/9/2011

Ulli Model ETF Portfolios Contact

Wild swings in the market affected our model portfolios. With our Domestic TTI now having slipped into bear market territory, I turned our #1 Trend Tracking Portfolio into a hedged portfolio as announced 2 days ago.

While yesterday’s rebound was dramatic in scope, it remains to be seen if it was simply a dead cat bounce or if there is more upside to come. Incredible volatility is a typical sign of a bear market and much of the recent activity reminded me of the events of 2008.

Let’s take a look at how our ETF Model Portfolios were affected by last week’s market swings, after the S&P 500 turned negative for the year:

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Major Market ETFs Recover From Abyss

Ulli Market Commentary Contact

It was another wild day on Wall Street, as the Dow dropped from a gain of 150 points to a loss of more than 200 points, followed by a recovery of 430 points.

The main event of the day was the announcement by the Federal Reserve that QE-3 is not on the table (disappointment), but that interest rates may remain at records lows for some 2 years (euphoria).

Aiding the volatility was the fact that the markets had been extremely oversold, some profit taking was going on and, after a rebound off the bottom, heavy short covering set in to power the major market ETFs out of the abyss.

Things looked dicey for a while and, as announced yesterday, I added the SH component to set up our hedge for PRPFX. There is no clear cut entry point, especially when the market moves with lightening speed, but I indicated via the red arrow in the chart above when the hedge was finalized.

Obviously, with the benefit of hindsight today would have been a good day to be outright long, but you can never be sure beforehand.

This is where our hedge stands after today’s close:

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A New Uncertainty Surfaces – Expanded ETF Master Cutline List – Updated through 8/5/2011

Ulli ETFs on the Cutline Contact

Every so often I talk about known and unknown uncertainties, and the power they have to derail markets, especially in today’s volatile environment.

The latest uncertainty, which became known after the markets closed on Friday, was S&P’s downgrade of U.S. debt from its sterling AAA rating to AA+. While the possibility of a downgrade was not breaking news, the sudden timing of it sure was.

Most analysts I have read are just uncertain about market reaction as you may be. The common thread was that there might be some increased volatility for a couple of days or so until things settle down. I would agree with that.

More downside action will most certainly push our Domestic TTI into bear market territory, as last week’s weakness may continue for the time being. The sharp downturn changed the composition of our ETF Master Cutline list in that there are currently only 38 ETFs listed above the line (down from 188), while the bearish side now shows 358 ETFs (up from 208).

Take a look at the latest report:

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Last Week In Review: ETF News And Blog Posts To 8/7/2011

Ulli ETF News Contact

In case you missed it, here’s a summary of the ETF topics that I posted to my blog during the week ending on 8/7/2011.

Another sharp downside week pushed the major domestic indexes to the edge of slipping into bear market territory, according to my Domestic TTI.

After Friday’s close, Standard & Poor’s announced the downgrade of U.S. debt from AAA to AA+ with a questionable outlook. My guess is that market reaction will be very volatile for a day or so until that news and possible implications have sunk in. On the other hand, maybe some of this news has already been priced in, as it was expected, but the timing of it was the big unknown.

In any event, if you followed my sell stops rules, you should not have any equity exposure at this time with the exception of a couple of sector/country ETFs.

This week, we covered the following:

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Thoughts On Hedging The Permanent Portfolio Fund (PRPFX)

Ulli ETF Hedge Contact

As you know from my Wednesday ETF Model Portfolio posts, my preference in my advisor practice is the use of portfolio #1, which includes a core holding in PRPFX, the only mutual fund I currently use and advocate.

During the recent market upheaval, PRPFX has held up extremely well and therefore has given us the type of portfolio stability I was looking for.

But is it a fund for all times and all scenarios?

If you look back to 2008, you will notice that PRPFX declined as well, but not nearly to the extent that the broad market did as measured by the S&P 500 (SPY). The 5-year chart below clearly demonstrates not only this point, but also underscores again the wisdom and benefit that limiting downside risk has its long-term rewards:

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