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

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

One of the worst intra-day market swings gave the bears some long hoped for ammunition. The major indexes surrendered all gains for the year.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has now crossed its trend line (red) to the upside by +1.52% (last week +4.41%) keeping the current buy signal intact. The effective date was June 3, 2009.



The international index broke below its long-term trend line by -2.69% (last week +3.89%). A Sell Signal was triggered effective May 7, 2010. We are no longer holding any positions in that arena.

A picture is worth a thousand words, even when the picture represents an ugly day on Wall Street. With the Dow being down almost 1,000 points at one time, losses were cut sharply during the last hour of trading.

Sure the Greek contagion was at the center of attention, but it appears that the latest news reports were not enough to create an outright panic.

Rumors of an incorrectly entered trade by a trader (working for a major firm), who mistyped a letter on a financial derivatives trade, may have very likely contributed to the extreme downside action by subsequently triggering other sell orders as preprogrammed machines were suddenly in charge. I’m sure we’ll find out more details as they become available.

Nevertheless, it was a down day, although I don’t give that much validity to a one-day wonder, whether it happens to the upside or the downside. As mentioned in yesterday’s post, we liquidated our emerging markets positions early this morning before the sell off stamped kicked into high gear.

Several other sell stops were triggered, and we will liquidate those tomorrow, unless the market stages a sharp rebound. At the same time, downside action was enough to trigger an outright sell signal for our International Trend Tracking Index, which covers “broadly diversified international funds/ETFs.”

The international TTI has now moved below its long term trend line and into bear market territory by -1.48%. All holdings in that arena should now be sold, although we no longer had any positions.

The domestic TTI resides still above its own trend line by +2.72%. I will post the updated charts tomorrow.

Despite a lower opening, the markets staged a mid-day comeback yesterday, but were unable to hold on to the advances as the chart above shows. Afternoon selling produced new lows for the day with the only positive being that we rallied off those lows towards the close.

As I mentioned yesterday, our emerging markets holdings did indeed break through their trailing stop loss points and, barring a huge turnaround today, will be liquidated. No other stops have been triggered.

While all eyes were still feasted on the Greek crisis, along with the potential of more fallout, the U.S. displayed more signs of an economic recovery. Positive figures from ADP showed, two days prior to the Labor Department’s payroll report, that the private sector added 32,000 jobs in April.

Additionally, the number of planned job cuts by U.S. employers fell 43% from the previous month, which is at least a step in the right direction.

Despite weeks of yapping to the contrary, warnings from the IMF and ECB of financial contagion in the euro zone from the Greek debt crisis were heard loud and clear and added to market uncertainty. Any default would add risks to the stability of the monetary union and could jeopardize the future of the euro.

Be that as it may, we have no control over those events, so we will focus on the things that we can control, which is the execution of our sell stops. This topic has been discussed at length via dozens of blog posts over the past year.

In case you missed it, I have compiled these in a 70-page e-book, which you can download for free right here.

Monday’s feel-good-rally after Friday’s drubbing died at the opening yesterday as prices gapped down and never recovered.

Despite a rise in pending homes sales and positive Merck and Pfizer earnings, all eyes were feasted on the Greek bailout and the increased concern that the Greek government would fail in getting its debt problem under control and force another bailout package.

Coupling that with the fact that Portugal, Spain and Ireland are waiting in the wings with similar problems, simply created an unknown that the markets were unable to handle. You can read more on that topic here.

The euro was the whipping boy of the day, while the dollar rallied and supported our positions in UUP. There was no place to hide, so UUP turned out to be the only bright spot on the computer screen.

In terms of our trailing sell stops, none were triggered, but the emerging markets moved within shouting distance and will be monitored closely. As I posted in “Running Out Of Steam,” the emerging markets were the leaders on the way up as this buy cycle began, and it appears that they will be leading on the way down as well.

The use of leverage has always intrigued investors to increase returns despite the increased downside risk. The ETF arena features a stable of 2X and 3X leveraged funds covering various areas.

The fact that some of these sport high daily trading volumes supports their popularity. For example TNA (3X bullish S&P; 500) has an average daily trading volume of $500 million while SDS (2X bearish S&P; 500) has over $1 billion.

If you are an aggressive investor, who wants to play with fire, there are a few things you need to know as ETF Trends reports in “Spice Up Your Portfolio With Leveraged ETFs:”

* Returns are only meant to reflect the daily performance of a fund’s underlying index. Each day, these ETFs “reset” and over time, this can lead to a fund not staying in perfect line with its benchmark.

* These funds are meant for daily use; if you hold them longer, just be aware that there may not be a 1-to-1 tracking of the underlying benchmark.

I believe that these ETFs are suited only for the most aggressive investors with deep pockets. The speed with which you can make or lose money during fast moving markets boggles the mind. I have one well capitalized client who likes to “play” with some of these ETFs and making or losing $50k can often happen in minutes.

It’s a trader’s paradise but a long-term investor’s nightmare. Stick to what you are comfortable with and leave the high risk ETFs for those who have the stomach and the funds to handle a wild ride.

While ETFs continue to be the hottest investment tool, much to the chagrin of mutual funds, when it comes to the high yield arena, they are still a worthy competitor as ETF Trends submits in “High-Yield ETFs vs. High-Yield Mutual Funds:”

Exchange traded funds (ETFs) may have siphoned billions of investment money out of mutual funds in the past year, but when it comes to high-yield bonds, mutual funds are bringing a competitive game.
…

Still, HYG and JNK are better for short-term trades because of their transparency, ability to trade throughout the day and lack of short-term trading fees. Mutual funds may be the better choice for long-term investing due to their total return outperformance.

To be clear, this is not a matter of pitting mutual funds against ETFs, but simply a matter of selecting the tool that’s most appropriate for you. Due to the ever present market volatility, my preference for generating income is ETFs, especially after the market run of the past year. While more upside potential still exists, at these levels, the risk of a correction has increased quite a bit.

Keep in mind that high-yielding ETFs and mutual funds will follow the general direction of the market. Take a look at this 2-year chart showing JNK and HYG compared to SPY (S&P; 500):

As you can see, during the meltdown of 2008, JNK and HYG did better than SPY, but holding on to these and seeing your principal deteriorate by some 40% will not give you the warm fuzzies, despite a 10% yield.

In my view, income funds/ETFs need to be treated just like equity funds/ETFs in that their trends need to be tracked, and a sell stop has to be used in the same fashion to protect your downside risk.

Disclosure: We have holdings in JNK