Yesterday, the markets looked past the turmoil in Egypt and recouped a good chunk of Friday’s losses.

Supplying the initial boost were a couple of takeover announcements and better-than-expected earnings from Exxon Mobil. Further helping the upside cause were two economic reports showing that the recovery maybe gaining steam.

Consumer spending rose more than forecast as purchases, which account for 70% of economic activity, climbed for the second consecutive month in a row. Additionally, another report showed that businesses expanded at the fastest rate in two decades according to the Institute for Supply Management.

Gold lost and interest rates rose. Nevertheless, the markets managed to close up in January, which can bode well for the rest of this year.

According to the Stock Trader’s Almanac, a rise in January has resulted in gains for the rest of the year 90% of the time since 1950. While these are good odds, it does not say anything about the magnitude of the gains. So we’ll have to wait another 11 months to find out for sure if this will be an odds defying year or not.

Here’s a reader question that comes up on a regular basis:

As an employee of the xx company, I manage my Federal Thrift Savings Plan. If I get stopped out, what rules should I use to re-enter the market? I know you must get this question a couple of times a week but I couldn’t find the answer in your past postings.

Re-entering after having experienced a whipsaw signal is always a challenging task. There are no hard and fast rules and much depends on the individual’s risk tolerance. I can suggest several scenarios for you.

Let’s assume the high price a fund has reached, since you bought it, is $10, and the market starts to decline. If you apply the 7% sell stop rule (for domestic and international funds/ETFs), you should be pulling the trigger once the fund breaks through a price point, on a closing basis, of 9.30 or thereabouts.

You now have 3 options:

1. You can replace this fund with another one that is currently in an uptrend

2. If you are conservative, you can repurchase this fund once it takes out its old high of $10. That presumably would tell you that the uptrend has resumed, but, depending on market activity, it can be a long way back to reach that point.

3. If you are more aggressive and want to re-enter sooner, pick a price that is 2% above the 9.30 level you got stopped out of. That will get you in the market sooner, but it also can set you up for another whipsaw if this trend reversal does not hold.

As I said, there is no perfect way, and you can use any other percentage that you are more comfortable with. The only thing I recommend is that, once you have decided on that re-entry number be consistent with it.

Whenever markets correct and sell stops get triggered, there seems to be some confusion as whether the intended sell stop kicked in at the right time.

Reader Paul was wondering about that with regards to the last Friday’s sell of BRF. He wanted to know why I waited until the fund had dropped 18% off its high before selling it.

Did I really wait too long or did Paul not look at all the numbers? Here’s his matrix on the purchases and sales:

[double click to enlarge]

As you can see, Paul bought BRF on 9/14/10, after which it made a high of 63.73 and it was sold on 1/28/11 at 51.70 for a loss of -6.51%.

These are Paul’s figures, but are they correct?

No, because he forgot the most important part, which is that BRF had a huge distribution of $3.575 o 12/23/10. As I have posted many times, the high price needs to be adjusted down to correctly establish a new high point; in this case the new high would be 60.16.

Just as important is the fact that distributions affect the return as well. Here’s the updated matrix:

[double click to enlarge]

As you can see, this transaction just about broke even since the capital loss was just about offset by the distribution.

BRF corrected sharply and had come off its high by about 14% before we were able to liquidate it. That happens sometimes when markets get very volatile as we saw last week.

However, it is important to remember to always adjust for dividends/distributions if they occurred during the period you owned a fund/ETF; otherwise your numbers may be way off base and won’t give you an accurate picture of what happened.

As an aside, just glancing at returns provided by your brokerage firm statements will also not give you a completed view, since distributions are not included.

A few days ago, I ran into an old friend who enthusiastically greeted me with “Wow, did you see the Dow crossing the 12,000 level? My portfolio is now within 5% of what it was 3 years ago!”

That seems to be theme of the news media these days as you’re being bombarded with statements like the S&P; 500 has risen 92% from the March 9, 2009 lows.

As if you are supposed to have bought stocks on that infamous date while feeling like a loser if you didn’t make 92%. All this rebound has done is bailed out the buy and hold crowd.

Remember the simple math fact that states that if you lose 50% of your portfolio value, you have to make 100% just to get to the breakeven point? This is exactly what happened in 2008; most investors saw their portfolios drop some 50% and they are now getting close to a breakeven point, just as my friend Mike mentioned above.

Mike’s quick reference matches my numbers as well. You may remember that our domestic sell signal kicked in effective June 23, 2008 with the S&P; 500 being at the 1,318 level. It’s currently just below the 1,300 mark and needs to gain another 1.65% just to get to the 2008 level we sold at.

In other words, simply looking at the rebound after the market crash is not seeing the big picture. You need to factor in what happened before March 9, 2009, in order to see that the last 2 years did not really produce any portfolio gains; it was simply time spent making up losses.

It’s hard to believe but, if you had sold along with us on June 23, 2008 and never reentered the market again, you’d be still ahead of those claiming of having made 92% off the March 09 lows.

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

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

The Egyptian crises pulled major indexes sharply lower today. However, for the week, the losses were modest.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has moved above its trend line (red) by +4.71% (last week +4.58%) and remains in bullish mode.

The international index has broken above its long-term trend line by +7.64% (last week +8.37%). 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.

The S&P; 500 bounced against its 1,300 level before selling off yesterday, while the Dow actually broke through its 12,000 milestone, which it briefly held before profit taking pulled it back below.

The cause for this continued bullishness came from the Fed, as it was announced that the current policy with zero interest rates will be continued.

In its statement the Fed said that “the economy continued to be constrained by high unemployment, modest income growth, depressed home prices and tight credit. The central bank conceded that commodity prices are rising.

But core inflation is still trending downward, and that’s why it left its target on its key federal funds rate at 0% to 0.25%. And because it has mandates to control inflation and foster maximum employment, the Fed is continuing its plan to buy in $600 billion in Treasury securities by the end of June.”

It was not as much what the Fed said but, more importantly, that rates will remain low, which is what Wall Street had anticipated despite concerns over globally increasing prices, especially in the food arena.

While the respective 1,300 and 12,000 levels by themselves are meaningless, they do have psychological value in that they confirm that the current upward trend remains intact. Barring any unforeseen news, I would expect these milestones to be conquered in the near future.

On the other hand, the Fed’s announcement is also a clear sign that all is not well, and that the economy continues to sputter along at best, especially when it comes to housing and unemployment.

These are major domestic issues that can have a profound impact on market direction if they are not being resolved or improved upon at some point in the future. Just because the Dow may break the 12,000 barrier does not mean all is smooth sailing from heron forward.

Unexpected headwinds can surface at anytime. You don’t have to anxiously look for them, but simply be prepared and have a plan of action when they appear.