For income investors, the recent past has been anything but kind. Ever since the Fed’s Quantitative Easing program, which started in September 10, interest rates have headed higher and bond prices have turned south.

Munis have been on a downward swing as well and may face more fundamental problems as States and Counties are mired in budget woes.

Bucking the trend so far have been utilities. In the above 1-year chart, I compared the total bond market (BND) with a well diversified, insured muni ETF (PZA), and one of the utility ETFs (XLU).

While utilities took a dip down back in May/June 10 (see chart above), when the S&P; 500 lost 16%, they currently seem to have regained upward momentum. Sporting a current dividend yield of 4.13%, XLU might be worthy of your consideration.

Here are a few other utility ETFs that I track in my data base: DBU, JXI, PUI, FXU, IDU and VPU. Check them out to see if they are a fit for your portfolio.

Disclosure: No holdings

I have had some email exchanges with reader Ken, and he commented as follows:

Thanks for your response and your very valuable information.

Ken did not say as to when he began using sell stops in 2008, but if he had followed my postings and recommendations, experiencing a 30% loss before activating a sell stop was simply impossible.

First, from my observations over the past 25 years, markets don’t just crumble overnight and 2008 was no exception.

Second, using trailing sell stops will get you out of the market way before a major directional turn can be identified such as via the use of my Trend Tracking Indexes (TTIs).

Let’s revisit early 2008. The markets continued to come off their highs, but managed to generate a domestic Buy on 5/15/08. That turned into a whipsaw as the domestic TTI reversed and crossed its long-term trend line to the downside on 6/22/08, which gave us the sell signal to retreat to the sidelines again.

By the time the sell signal was given, we no longer had any outright long positions, as we had gotten stopped out of all of them leading up to 6/22/08.

We now sat on the sidelines in cash waiting for further clues from the market. There was neither recognizable market stress nor a crumbling in prices. It was an orderly retreat; however, its magnitude was great enough to move the TTIs into bearish territory.

The actual crash did not occur until 2 months later when violent market swings made it impossible for investors to get orders placed or even verified.

In other words, by following the trends, and acting on directional changes as they occurred, you would not have experienced the difficulties that reader Ken has described.

As the markets have ratcheted higher over the past few months, I have repeatedly commented about investor complacency setting in.

Some of the feedback I received even had a touch of arrogance as some seem to have thrown caution to the wind by jumping aboard of only the fastest moving ETFs.

Reader Steve had his experiences and shared the following thoughts:

Thanks for encouraging us readers to stay sharp during this time of market peaks. I for one am not complacent at all. I took charge of my investing last Oct. (was going through a broker for 10 years before that) and am trying to catch up for some lost months last year.

I agree with Steve that a severe haircut is coming; the timing of it is the unknown. It therefore is wise to be invested in a mix of ETFs, including those that are not the highest ranked ones in the M-Index food chain. The higher the ranking, the greater the volatility when a pullback occurs.

Slower and consistent growth, with limited whipsaws signals and a bear market avoidance approach, will beat fast growth over a longer term, such as five years, anytime.

Steve is talking about my MaxDD% indicator (Maximum DrawDown), which is not featured in the weekly StatSheet. This indicator allows you to select and hone in at those ETFs that have displayed less volatility during a given period, usually the past year.

It is very cumbersome to calculate this by hand, and I am looking for ways to include this important tool at some time in future StatSheets.

The goal of MaxDD% is to find ETFs/funds that have shown resistance to sell offs in the recent past by not having triggered their trailing sell stops. Even during the sharp pullback during May/June 2010, during which the S&P; 500 lost 16%, there were very few ETFs/Funds that bucked the trend.

One fund that stood out during that period, as it has many times before, was PRPFX, which we own. It came off its high by only -5.68%, for the period ranging from 12/31/09 to 2/18/11. Not only did it show above average resistance to sell offs, it also performed well when the market moved back into rally mode.

Out of the over 1,200 ETFs/No Load Funds I track, there was not one ETF that came close to this balance of upside potential with limited downside risk, while I found maybe 5 no load funds that were similar. Their MaxDD% was less than 7%; however, the upside potential was limited.

My point here is that at these lofty market levels, you need to have more balance in your portfolio to withstand some of the market’s hiccups. It pays to have exposure to ETFs/funds that have the potential to limit whipsaw signals during those market pullbacks that end up turning out to be temporary in nature.

Amazingly, there is always a question that has not been asked, although I thought I had heard them all. Here’s what reader Gary had to say:

In using a high, from which to calculate a 7% or 10% stop, it’s pretty easy with a mutual fund, because there is only one price per day.

For the purpose of finding the high point, from which to calculate the trailing sell stops, I treat mutual funds and ETFs exactly alike.

To my way of thinking, there is only one price that matters and that is the closing price. What happens intraday is just market noise and of no consequence to me when it comes to sell stops.

Therefore, the high price, based on a closing basis only, is the one I am selecting. To clarify again, it is highest closing price of an ETF, since you bought it, which will be used as a basis for calculating your trailing sell stop.

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

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

Slow and steady was the theme of the week as the S& 500 gained about 1%.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has moved above its trend line (red) by +6.01% (last week +5.47%) and remains in bullish mode.

The international index has broken above its long-term trend line by +10.25% (last week +9.08%). A new Buy signal was triggered effective 9/7/10. If you decided to participate, be sure to use my recommended sell stop discipline.

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

It was a bit of a roller coaster ride yesterday, as the chart above shows. Strong earnings from Dell and Deere got the rally going, which was derailed shortly thereafter based on news reports that two Iranian warships were passing through the Suez Canal on their way to Syria.

Gold and oil rallied while the markets sold off, but they later regained footing as fears of a provocation subsided. Stepping in to lend an assist to market direction was the Fed by boosting their 2011 economic forecast to the 3.4% to 3.9% range, which was up from November’s announcement of 3% to 3.6%. The unemployment rate was projected to drop into the 8% to 9% range by yearend and below 8% next year.

That was all Wall Street need to hear, the cheering started, and the major indexes pulled off their lows and closed solidly above the unchanged line. Even the recently beaten down emerging markets participated while energy recovered from Tuesday’s pullback.