In case you missed it, Al Thomas, author of the well known book “If It Doesn’t Go Up, Don’t Buy It!” posted another right-on-the-money article last week titled “Watch The Market Dive:”

The form is predictable. The execution is slightly different.

Our diver is approaching the end of the board. The final spring is about to be sprung. Investors are about to plunge in over their heads again. Many will drown.

I have to agree with this assessment and can only recommend that those investors, who were blindsided by last year’s market debacle, better be prepared (via a sell stop discipline) to deal with the possibility of another downdraft. I am not being negative here, but simply realistic in looking at where we are, economically speaking, and were we might be going.

We’ve rebounded off the bottom but only barely into bullish territory. There is no assurance anywhere that this trend will continue; on the contrary, with the question abounding about the reality of a second half recovery, we could see a trend reversal in no time at all.

If you have not read Al’s book, I suggest you do so. Yours truly, along with Trend Tracking, is honorably mentioned.

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

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

A dismal employment reports handed the major indexes (S&P; 500 and Dow) their third weekly loss in row.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has now crossed its trend line (red) to the upside by +2.04% 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 +8.42%. 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.

This week so far has been a little roller coaster with an up day followed by a down day, which was followed by an up day.

The moves have been fairly contained during this Holiday shortened week, and I would not read too much into these market swings.

Since the Wall Street mavens support a quarter to quarter mentality, it’s not surprising to see the focus on the S&P;’s +15.2% gain during the past 90 days. This, of course, does not tell the entire story.

Year-to-date, the index is up a scant +1.81%. All of the gains for the past quarter resulted from left over momentum from the March low rebound and happened within the first 5 weeks. Since May 6, the market in essence vacillated aimlessly and gained absolutely nothing.

In other words, the quarter started out with a bang and ended with a whimper, which makes me question the sustainability of the move.

While the rebound was strong enough to generate buy signals for our international and domestic Trend Tracking Indexes (TTIs), there has not been much follow through to the upside, which means we have not gone anywhere with our positions. As I have repeatedly said, a new catalyst is needed to provide the impetus for further gains.

Today, a day earlier than usual, the employment report will be published with a June loss of 498,000 jobs to be expected. Anything substantially less will very likely be greeted with a rally, while a worse figure could cause the markets to sell off.

With the international markets having come off their highs, after racing out of the gate following our Buy signal on May 11, 2009, many readers have been stopped out of their positions and are looking for a new entry point.

Reader Dave had this to say:

I thoroughly enjoy reading your daily blog. I am convinced that your method is far superior to buy and hold but seem to have stumbled out of the gate and would appreciate some help in a couple of areas.

I am 54, have suffered through the buy and hold of the early 2000s and 2008.

Dave brings up some good points that are worthy of further examination.

First, let me make it clear that, once a sell stop has been executed, you will find yourself in no-man’s-land. If the markets head further south, you’ll feel like a hero in that you made the right decision. If, on the other hand, the markets remain stable, or start to move back up, you may question the wisdom of your choice.

No matter what you do, you need to simply accept the fact that there is no perfect solution to this dilemma. You made the right decision by controlling the downside risk, and you now can either stay on the sidelines or try to find a new entry point.

You are not alone; this happened to me in my advisor practice as well. However, jumping back in, just because the markets moved a couple of percent, may not be the right choice.

While there are probably several options, let me share with you what my process of re-entering consists of. Before establishing a new position, I want to make sure that whatever trend is in place is sustainable.

Say I bought an ETF at $40 and it made a high of $44, before retreating and stopping me out at around $40.50. That leaves me with a slight gain. The markets bob and weave, and this ETF now hovers around the $41.50 level. Should I buy in or not?

Personally, that is not enough confirmation for me to believe that the trend has continued. If I like this particular ETF, and want to reinvest in it, I want to see the old high of $44 taken out before pulling the trigger and establishing a new position.

While this goes against conventional wisdom, I am more comfortable jumping aboard once momentum is accelerating and that means a break out to the upside.

Keep in mind that this is in no way an exact science but merely my way of trying to avoid another whip-saw by letting the market show me the way. If this ETF makes new highs, that to me confirms a resumption of the uptrend. If it doesn’t, I am glad I stayed on the sidelines.

One reader had the following questions in regards to controlling emotions when making investment decisions:

How long did it take you to be disciplined to follow your trend change in the contexts of all your emotions that a market may be just “”too high”” when it turns positive to reinvest?

Is that a big advantage of a fee based service to invest others’ funds?

Being an engineer by training, I never liked any approach to solving a problem that did not have a clear projection of several possible outcomes along with potential solutions as to how to deal with them.

I guess the need to have some means of control translated into an investment strategy that at offered me an opportunity to try to make unemotional decisions, because I already had decided that I could live with the possible outcomes (via a sell stop discipline).

It’s simple but not easy. No matter how long you’ve been involved with investing, there is always some emotion involved; you just learn how to deal with. Again, if you can live with the projected worse case scenario, then that should limit your emotional involvement.

Most investors have a hard time with it, so for some it’s simply easier to have someone else make the decisions for them. That assumes, of course, that the investor is in agreement with the methodology being employed, especially with the exit strategy.

In some ways, it’s almost easier to handle other people’s money, because you’re not emotionally attached, although you are responsible for it. I try to educate people in advance so that there are no surprises later on.

Much depends on the client’s attitude as well. There are some, whose life consists of following not only every tick of their holdings, but they also tune into every silly investment show on TV. That’s usually counter productive to any investment approach.

I have some clients who simply have no interest in the financial markets at all. They live busy lives and just want to be assured that there is a plan in place to protect their assets in case disaster strikes. They look at the big picture and spend no more than a few minutes a month reviewing their statements.

Even when following a pretty straight forward approach such as trend tracking, there are still subjective decisions to be made. They are not necessarily emotional in nature but require “user input” so to speak. That usually happens at major inflection points when buy or sell signals get generated.

To avoid potential whip-saw signals, I let the Trend Tracking Index (TTI) clearly pierce its long-term trend line before pulling the trigger. That is what I consider “user input” and is designed to simply avoid unnecessary trading signals whenever possible. Sometimes, we have benefitted by such a decision and sometimes it did not matter.

The key is to systemize an investment approach as much as possible, but I don’t think you can expect that effort to reach the 100% level.

Reader Peter had these comments recently:

I always enjoy your daily Blog and I do follow some of your investment principles. Keep up the good work.

A point that I think is important is to not just compare figures with the S&P; 500, but also Europe and Emerging Markets. Any Buy & Holder with “brain in gear” can be expected to be diversified across the global markets.

There is not much research necessary to evaluate how diversification across the globe has fared during last year’s market collapse. Let’s take a look at a chart comparing the S&P; 500, with Europe (IEV) and the emerging markets (EEM) over the past 2 years:



[Click chart to enlarge]

As is the case most of the time, a picture is worth a thousand words. All equity markets declined with utter abandon, and that is no surprise. Equities will benefit only in a bullish environment to varying degrees and will collapse when the market turns bearish.

This is simply common sense and not rocket science. And nothing is more uncommon than common sense when it comes to investing.

Many investment professionals either don’t have a clue how to indentify a turn in market direction or, if they do, they may not want to take any action as explained in “The Naked Truth.”