Whenever markets have a tizzy fit, and we get close to seeing our sell stops being triggered, I usually get my share of emails from readers wanting to let me know what their plan of action has been. Bob’s experience is very typical as he went to all cash at the first sign of trouble. Here’s what he said:

I was one of the lucky ones who felt that Greece defaulting on their debt was the one bit of bad news that would send investors running for the door, so I was able to get out of stocks and into cash before it got too bad; lost 1.5 percent as opposed to 13…

Would like to get back in but I still think that the jitters remain…any input would be greatly appreciated.

My view is that it’s better to be early than too late when it comes to selling. In this case, it served you well as you missed a large part of the downward move. Your decision also tells me that you are very conservative and probably dislike any fluctuations in your portfolio.

If that’s your concern when the markets retreat, it should be your concern as well, if/when the drop comes to an end, and we head higher. In other words, you’re better off waiting to be sure upward momentum has been restored before making a commitment again. This means not to jump aboard just because we have a one-day rebound, especially during these times where bulls and bears have been trading punches on a regular basis.

Technically, according to my domestic TTI, we’re still in bullish territory, although barely. Since many pros follow the moving averages of the S&P; 500, you could consider waiting with re-entering until its 50-day M/A has been broken to the upside. Since the S&P; currently hovers some 5% below it, the market will have to make quite a convincing move, before reaching that level. At least in theory, it would assure you that it’s not a head fake.

Looking at the big picture, I think downside risk outweighs upside potential, at least at this time. You might want to review Sunday’s post featuring Harry Dent’s video.

You may not agree with all he said, but he makes some good points. I believe, and have said so many times, that the economic recovery has been artificial due to the trillions of dollars having been pumped into various stimulus packages, which makes it questionable whether we have actually seen real growth.

All global economies are tightly intertwined and at any day a news event can affect stock market direction. Try to be methodical, follow the trends, use sell stops, but don’t sweat the small stuff when it comes to being whip-sawed causing you to take a small loss.

The key is to know and accept that small losses can’t be avoided and are simply part of investing; however, participating in a repeat disaster such as 2008 is unacceptable.

Today, I’ll be travelling back to California from Germany. Regular posting will resume tomorrow, Tuesday.

Several columnists and newsletter writers have been downright bearish in their assessment of the markets. Even MarketWatch’s own Paul Farrell recently chimed in with “Crash Dead Ahead.”

One reader sent me a copy of Richard Russell’s Dow Theory newsletter, in which he advised his subscribers (May issue) to sell all stocks. For a different view, and that one-more-rally appears to be on the horizon, here are Harry Dent’s observations:

While I can agree with most of what’s being said, no one knows for sure if this “one more rally” concept will materialize. My preference is to ‘listen’ to the markets via its trends, which allows me to arrive at a conclusion as to what my investment stance should be.

I suggest you do the same and get away from predictions and opinions as much as you can. While you can get lucky that way, the odds are not in your favor.

A few days ago, Mark Hulbert wrote an interesting piece titled “The Bearish Bandwagon:”

OK, all of you who claim to be contrarian investors:

But it’s very rare for the advisory consensus to be right about the market’s direction.

One of the reasons for the common strong shift to bearishness could be that the advisor community could/should have learned something from the 2 bear market disasters of the past decade; at least I hope so.

After all, when you not only lose money for your clients on a big scale, but also see clients starting to walk looking for better opportunities, you better sharpen your skills or re-evaluate your approach.

Since over 95% of all advisors rely on buy and hold as the gospel, some may have made improvements by using sell stop disciplines to avoid participating in repeat market disasters. No one can be sure, but the above article seems to indicate that past bear markets must have made some kind of an impact for sentiment to change that quickly and to such an extreme.

At the same time, the ‘buying on dips’ mentality has been clobbered as well when markets retreated as severely as they did. It will be interesting to see if that pendulum swings back to the bullish camp just as quickly when the next rebound rally occurs.

Maybe it’s simply the realization that limiting losses is a good thing, especially if you handle other people’s money. The future of the market is an unknown, so when things get very volatile, a less aggressive investment stance has definitely merit, a view that has been largely forgotten in the past.

Of course, if you are aggressive, you can use this drop as a buying opportunity, but with the memories of 2008 still visible in the rearview mirror, this kind of recklessness can sure come back to haunt you.

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

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

A zigzag week closed out the month of May with the major indexes suffering losses.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains above its trend line (red) to the upside by +1.06% (last week +1.29%) keeping the current buy signal intact. The effective date was June 3, 2009.

The international index broke below its long-term trend line by -3.90% (last week -4.72%). A Sell Signal was triggered effective May 7, 2010. We are no longer holding any positions in that arena.

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

The past two trading days were a tale of complete opposites. On Tuesday, we witnessed a sharp drop at the opening with the major indexes spending the remainder of the day clawing back to close around the unchanged line.

Yesterday, it was the exact opposite as a nice rally fell apart in the last 1-1/2 hours, and we ended up in negative territory with the Dow surrendering the 10,000 level for the first time since February.

This type of market behavior is clearly a sign that we are at a crossroads. There appears to be no clear long term trend in place, and we are aimlessly flapping back and forth based on the latest news.

These days, it’s not the domestic news menu that is disturbing but the international one. With Europe being fairly quiet for a change, encouraging reports on durable goods and new homes sales helped the bullish cause until news surfaced that China was reviewing its holdings of Euro zone debt because of potential defaults.

That’s all it took, and south we went for the remainder of the day. Despite the close in the red, our domestic Trend Tracking Index (TTI) remains above its long-term trend line but only by a meager +0.62%. I took advantage of yesterday’s early rally to liquidate 2 sector holdings, which were bouncing around their sell stop points.

As I am writing this early Thursday morning in Germany, the futures are pointing to a higher opening with the S&P; up by about 1%. As we’ve seen in the recent past, this can be meaningless as far as the outcome for the day is concerned.

We may see some type of a rebound rally, but momentum has clearly changed and a move to bear market territory, as measured by our domestic TTI, remains a distinct possibility. Right now, I’d rather be safe than sorry.