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

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

Monday’s rally was almost wiped out by today’s poor unemployment report, but last hour buying along with short covering kept Friday’s losses manageable. For the week, the major indexes gained.

Our Trend Tracking Index (TTI) for domestic funds/ETFs held above its trend line (red) by +3.48% (last week +2.50%) and remains in bullish mode.

The international index has now broken above its long-term trend line by +3.10% (last week +1.32%). A new Buy Signal was triggered 7/23/10 with the effective date being 7/26/10. Be sure to use my recommended 7% trailing sell stop discipline, should you decide to participate in this new uptrend.

Despite an early whip-saw move, the markets slowly but surely gained momentum yesterday and ended up closing higher as the chart above (courtesy of MarketWatch.com) shows.

It wasn’t a huge move, but it solidified the price position above the S&P;’s widely watched 200-day moving average (currently at 1,115). Contributing to upside momentum were better than expected reports regarding private-sector payrolls and improvements in the nonmanufacturing part of the economy.

On the menu for today will be same store sales reports from major retailers as well as weekly figures about jobless claims.

Changes in trends can tell you interesting stories. In Deflation and Double Dip Recession (July 4, 2010), I talked about dividing the investment world into five major asset classes. At the time, given the overall economic outlook not just here in the U.S., but worldwide, four of those five were in bear market territory, and only bonds had given a bullish signal.

Here we are only a month later, and all five assets classes have moved above their respective long-term trend lines into bullish territory. While even non-correlated assets can dance to the tune of the same drummer for a while, that condition will be limited.

Why? You cannot have a weak economic scenario with bonds rallying while at the same time commodities are on the rise. Sooner or later, a major trend will take over resulting in some asset classes to slip back into the bearish camp.

It’s important to realize how fast things can change, which makes it even more critical to not only have an exit strategy in place, but to actually execute it when changes in direction tell you to do so.

Some profit taking was expected after Monday’s strong push above the S&P;’s 200-day moving average. Although volume was fairly light, the pullback yesterday was modest, and we remained above the critical 1,114 level on the S&P; 500.

Weaker home and auto sales, amidst worries about Friday’s upcoming jobs report, worked against upward momentum, but no harm was done.

Interestingly, the recent buy signal based on the international Trend Tracking Index (TTI), effective 7/26/10, has shown more upside momentum than its domestic cousin. As of yesterday, the domestic TTI had reached a point of +3.23% above its trend line, while the international TTI had rallied to +3.16% above its respective line.

Maybe it’s the perception (or reality) that internationally more opportunities for growth abound compared to the “ailing” U.S. economy. Even commodities are showing signs of life again, as the Commodity Index is nibbling at its long-term trend line.

Nevertheless, I believe that eventually economic reports will prove to be more crucial to market direction than individual company earnings. The mother of all reports (employment) will be due out Friday.

Any hint that improvements are on the way (unlikely), or that things are not as bad as anticipated (possible), will give the markets the ammunition needed to move higher. In the absence of such outlook, we may see some softness and continue range trading until some other event will end the sideways pattern.

On a personal note, I finally got my lap top virus issues resolved, and I am trying to catch up on accumulated e-mails.

First, a personal note. I am out of town, and my trusty laptop caught a nasty virus despite my many precautions. My email program has been down since Sunday morning, but I hope to have it restored by (hopefully) tonight or sometime tomorrow.

Please be patient if you have emailed me; I will respond as soon as possible…

Second, my blog posts will be shorter than usual due to limited computer access.

The markets started the month of August with a bang by piercing the S&P;’s 200-day moving average of 1,114 and closed at the 1,125 level. I took the opportunity to sell the short component of our hedge, which makes use now net long with a portion of our domestic portfolio.

Our latest international additions performed well, and I am looking to expand in that arena. Overall, today’s positive market attitude seems to stem from the assumption that there is some growth in the economy (according to Bernanke), which is better than no growth at all as had been previously feared.

I’ll keep you posted on my lap top virus trials and tribulations.

Several readers sent in positive responses regarding my post on Stadion’s ETFFX fund, which uses some form of trend tracking to avoid market exposure during bear market drops.

Stadion’s Senior VP Steve Beard had this to say:

Your recent writing in which you commented favorably about Stadion’s approach to managing money was gratifying. Thank you. Two things: ETFFX has actually been around a year longer than mentioned (since Sept. 2006), and we now offer an institutional share class without load or 12b-1, which brings the expenses down to just over 1.5%.

And you are entirely accurate in saying that investors don’t need giant returns following bad markets if they haven’t suffered giant losses during the bad markets. In the ‘lost decade’ we delivered about 7% per year gain to our investors despite having no particularly remarkable ‘up’ years. As managers, we believe the emphasis should be on performance OVER time versus any given year IN time. We enjoy telling advisors and clients that while we may not be the prettiest girl at the dance (in any given year), we may be the one you want to marry.

I agree with his statement that performance should be judged over time and not just for a short recent period. More importantly, it should always include a period of bullishness and bearishness so that any shortcomings of an investment approach are clearly visible.

However, that is not standard operating procedure. For example, the bear market of 2000/2001 ended early in 2003. I remember reading many main stream media articles in 2006 and thereafter that referred to the fact that mutual fund performance references were about to improve as the ugly 3-year numbers were finally dropping off the records.

In other words, Wall Street likes to measure and publicize only returns for bull market periods. 5 years after a bear market ends, the records are “clean” again and unsuspecting investors will make the same mistake by judging only what’s in front of them (a bull market) and not considering the consequences once the bear returns.

I can only hope that this attitude has finally changed as 2 bear markets in the past decade should have sent a loud and clear message.

Currently, a clear long-term trend can’t be found anywhere among the major indexes. If you look at charts of the Dow Industrials, Transportations, Nasdaq, S&P; 500 and others, they’re all in the process of forming large tops, which can have dire downside consequences, unless a breakout to the upside occurs.

Very typical of representing a market top is our Domestic Trend Tracking index (TTI). Take a look at this multi-year chart:

[Double click chart to enlarge]

It’s apparent that the current topping formation is very similar to the one we’ve seen in 2008, although smaller in size. While the markets can churn sideways for a while longer, eventually, there are only two likely outcomes:

1. The markets will gather enough momentum and continue to rally by taking out the old high of 46.00, which means this topping formation from a technical point has been erased, or

2. Upward momentum deteriorates, prices sink and eventually a break to the downside occurs (through the red line), which puts us clearly back into bear market territory.

For most of this year, we have spent chasing the markets up from the 44 level in the above TTI to a high of 46, then back down and now back up. The more widely followed S&P; 500 confirms this pattern as well as it remains in negative territory YTD.

As I have posted, it’s been one large sideways movement, which has proved to be frustrating for investors and advisors alike, no matter what your methodology has been.

Be aware that this type of market sloppiness is a sign of great uncertainty, as far as market direction is concerned, as opposing forces pretty much have cancelled each other out in a typical bull vs. bear tug-of-war.

This time will come to an end for sure; we just don’t know exactly the timing of it. When it does, you will recognize that a new trend has been set as pointed out above. Just be aware that it may not be in the direction you had hoped for, so remain prepared to deal with a bearish outcome if that is what the future has in store for us.