Hat tip goes to a couple of readers for pointing to a mutual fund that actually tracks trends (by investing in ETFs) and moves to cash when a bear market strikes or during times of uncertainty.

The fund is Stadion Managed Portfolio (ETFFX). To get a better idea of its price movements, let’s first look at a 2-year chart:

It’s interesting to note the flat horizontal periods where this fund obviously has taken a defensive position during which the NAV remained steady. ETFFX has been on the market since Sept. 2007. While this represents only a short period of time, it nevertheless includes one of the worst market crashes in history (2008).

Let’s see how ETFFX has fared in comparison to the S&P; 500:

A picture is worth a thousand words, and this one is no different. While any investment approach suffered some losses in 2008, ETFFX managed to keep those to a minimum.

This also supports my view that #1 it’s far more important to avoid the big losses than to participate in every uptrend and #2, as I posted in “Buy And Hold Revisited,” missing the next major rebound (from March 9, 2009) is unimportant (after having moved to the sidelines) as it only serves the purpose (so far) of making up heavy losses.

In its fairly short life, ETFFX has performed well. So what’s wrong with it?

The only thing I found is that it is a load fund with an upfront charge of 5.75%, which is not acceptable to me. However, at my custodian (Schwab), anyone can purchase it as a “load waived fund.”

If this fund is of interest to you, you might want to check with your custodian to see if it can be bought there as well without any fees.

Disclosure: No current positions in ETFFX

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

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

Across the board positive earnings pushed the major indexes to the top of their trading ranges despite warnings by the Fed that a recovery might take longer than expected.

Our Trend Tracking Index (TTI) for domestic funds/ETFs held above its trend line (red) by +2.62% (last week +1.28%) and remains in bullish mode.

The international index has now broken ABOVE its long-term trend line by +1.16% (last week -0.93%). A new Buy Signal was triggered today 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.

For the most part of the day, the markets were entrenched in a sideways pattern yesterday, when suddenly the indexes dropped like a rock as if pushed off a cliff.

The culprit was none other than Fed chairman Bernanke who testified before congress about the state of the economy. His words were anything but assuring for Wall Street as he used phrases like the outlook is “unusually uncertain” and “in all likelihood, a significant amount of time will be required to restore the nearly 8 1/2 million jobs that were lost over 2008 and 2009.”

Not exactly confidence building for a market that has rallied way ahead of any economic reality. At the same time, he mentioned that the Fed will act if the economy needs more boosting. I guess, since it worked so well last time, we need to do more of it. Go figure…

Bulls and bears are just chasing each other’s tails without clear direction. This is a market environment where you can lose money quickly on the short side and on the long side.

It’s best to stay away from equities for the time being (unless you are hedged) and remain in bond funds/ETFs. As the economy weakens further, bonds will be the beneficiary. The trend is up and, until it reverses, I see no reason to change.

The markets still had a hangover yesterday from Monday’s disappointing results by IBM and TI. Nevertheless, a rebound materialized reminding me of the old adage “one man’s trash is another man’s treasure,” as buyers saw opportunities where others saw disaster.

Domestically, the only negative news came from the housing sector with housing starts falling again while building permits were up.

This rebound may be supported further today as Apple surpassed analysts’ estimates after the close yesterday. The number to watch in terms of new upward momentum being generated is the 200-day moving average of the S&P; 500, which currently is around the 1,111 level.

Until that is broken, we remain in neutral territory, moving in a large sideways pattern, and aware of the possibility that a break-out to either side can occur at anytime.

After Friday’s drubbing, yesterday proved to be a time of testing to see if more follow through selling would take the major indexes to lower levels. So far it did not happen as the markets moderately bounced off Friday’s lows but faded towards the end of the session.

Watching the futures, it would appear that Tuesday’s opening will be to the down side as investors were disappointed with the quarterly results from heavyweights IBM and TI.

Other domestic news items were pretty much a non-event in that they cancelled each other out. However, Europe’s sovereign debt concerns slipped back onto the front burner as Moody’s cut Ireland’s bond ratings by one notch.

Overall, not much was driving the market in either direction; our domestic Trend Tracking Index (TTI) moved slightly higher and has now reached a point, which is located +1.41% above its long-term trend line. There are no changes to our invested positions.

MarketWatch featured “Buy and hold gets old,” as the aimless meandering of the markets is maddening for many investors along with the ever present memories of the 2008 crash:

Yet while both Stadion and Kenjol’s strategies sidestepped the worst of 2008, they also missed much of the recovery the following year.

Kenjol’s Sector Rotation was up 24.3% in 2009 compared to a 26.5% gain for the S&P; 500, while the Stadion fund gained only 2.7%. Kenjol didn’t provide returns for this year so far, but Stadion’s fund was up 2.5% as of July 15, three percentage points better than the S&P; 500.

Copelin said the securities he owns have a stop-loss order that will automatically sell if they fall by 10%.

[Emphasis added]

I just want to hone in on the highlighted sentence above since that always seems to be the #1 argument by the buy and hold folks against ever moving to cash on the sidelines.

Let’s look at the chart of the S&P; 500:

The upper red arrow represents the point in time of my last sell signal on 6/23/08. The low was made in March 09 (bottom of right arrow) and a rebound rally pulled the S&P; 500 out of the basement. By all measures, the market recovery was substantial.

However, it was not (yet) substantial enough to make up the losses that were caused by the 2008 crash. In fact, as of last Friday, the S&P; still needs to gain another 23.77% just to get to the level of our sell point in 2008.

This makes the argument “if you sell, you will miss most of the subsequent recovery” look downright silly, which it is. It supports my long-held contrary view that if you don’t participate in a major bear market to begin with, you don’t need to worry about missing a rally; you will still be ahead while everyone else scrambles to make up losses.

Since markets go down a lot faster than they go up, making up losses will not only take years of quality investing, but will also need some cooperation by the overall trend remaining positive.

Given the weakening economy and stimulus induced recovery of the past, which seems to be now dying a slow death, it becomes clear that further upside potential maybe be limited thereby further extending the time needed to get to a breakeven point.

While the article points out that ‘buy and hold gets old,’ to me, it’s been dead for a long time.