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

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

A very negative consumer sentiment index today pulled the major indexes off their lofty levels.

Our Trend Tracking Index (TTI) for domestic funds/ETFs held above its trend line (red) by +1.28% (last week +1.34%) and remains in bullish mode.

The international index has now broken below its long-term trend line by -0.93% (last week -0.87%). 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.

It wasn’t a straight road, but the Dow managed to stagger to its 7th higher close in a row yesterday, although only by the slightest of margins.

Wall Street seemed to be enamored by and only focused on Intel’s bullishness by totally disregarding other economic news, which indicated anything but a continued recovery in the second half of the year.

First, retail sales for June fell 0.5% igniting concerns that an economic slowdown is a real possibility. Second, this fact was supported by the normally upbeat Federal Reserve cheerleaders, issuing a reduced second half growth forecast. Maybe some reality has set in as the Fed minced no words by stating that it might take as many as six years for the economy to recover fully from the recession:

The long recovery would be the result of “firms’ caution in hiring and spending in light of the considerable uncertainty regarding the economic outlook, by households’ focus on repairing balance sheets weakened by equity and house price declines, and by tight credit conditions for small businesses and households.”

This is about as negative of a Fed statement as I have ever seen. Nevertheless, traders on Wall Street seemed to simply ignore the downbeat Fed announcement and pushed the major indexes off their lows.

The S&P; 500’s early assault on the 1,100 level failed again, but a late day rebound cut losses and moved us back to the unchanged line for the day. Again, the number to watch is around 1,111, which represents the S&P;’s 200-day moving average. Once that point is clearly pierced, more buying and higher volume is likely to materialize.

I found it astounding that the markets ignored the usually closely watched Fed remarks. We have to wait and see if other positive earnings reports can jump start a new bull run in the face of a weakening economy. If so, it may very well be a short-lived one.

Alcoa started the earnings season on Monday and Wall Street seemed to like the better-than-expected report as the rally continued on Tuesday.

After yesterday’s close, Intel’s report card not only exceeded expectations, but 3rd quarter guidance was positive and could provide more upside momentum today.

The S&P; 500 raced towards the 1,100 level, but sold off in the end before reaching it. We may very well see another attempt today, but with major indexes now having completed a six-day winning streak, some pull back is in order.

Mish at Global Economic Trends featured an interesting story and graph showing how the stocks in the S&P; 500 have been tracking the index to the highest degree. Last time these extreme conditions occurred was in October 1987, just prior to the crash.

Sharp rallies on relatively low volume (with indexes below their long-term trend lines) just don’t give me the warm fuzzies.

The markets meandered most of Monday in anticipation of the start of the earnings season. The major indexes gained a tad as the chart (courtesy of marketwatch.com) shows:

Alcoa reported slightly better than expected earnings after the close, which may give the market a boost on Tuesday.

In the bigger scheme of things, all three major indexes remain below their 200-day moving averages, which means we’re still in neutral territory. I like to see the S&P; 500 break above it, which would indicate a resurgence of bullishness. That would make me remove the short side of our current small hedge so that we can become outright long with a portion of our portfolios.

In the meantime, it’s a waiting game to see if there is enough starch in this earnings season to keep last year’s bull alive.

In Saturday’s post “Is it time to take cover?” I featured Bob Prechter’s market view along with his extremely gloomy forecast.

If you are in need of a more upbeat outlook, here’s what Warren Buffett had to say on the topic:

In the interview, Buffett says “we’re on the right course” and encourages President Obama to speak with “enormous confidence” about the country’s economic future. He says that the stimulus is working and that the economy will improve in the next two or three years.

“We’re hiring,” he adds, referring to many of his Berkshire Hathaway companies.

You can see a video of his interview here.

While I respect Mr. Buffett, I sure can’t share his extremely optimistic view of the current state of the economy. I see us heading in the opposite direction, although most likely not with as extreme of an outcome as Bob Prechter forecasted.

Only time will tell which one of these gentlemen will be right.

One reader emailed an interesting comment regarding trend tracking and the adherence to strict trading rules. Here’s the relevant part of what he had to say:

I have written to you on the subject previously and thanks for the replies. You have devised a proprietary trend line as I understand it. You have a basic rule that is clean and clear to follow. The price drops below the trend line its in sell territory. Above its in buy mode.

While it is understandable that you would want to systemize an investment approach to a point so that it can be used without questioning any step involved, or even thinking about it, that is simply not realistic. There will always be some subjectivity. Just look at the process itself an investor has to go through to make fund/ETF selections once a buy signal has been issued.

You may not have been a reader long enough to know that we applied the same process of letting the domestic TTI “clearly” cross to the upside during the last buy signal (June 09) to be sure a sudden market pullback would not create a whipsaw situation.

That is the only reason for using what you might call a trading band around the trend line. Remember, that trend line itself represents the dividing line between bullish and bearish territory.

However, after a bullish cycle, such as the last one, it only has a secondary function as an exit point. Our 7% trailing sell stop discipline will have you out of the market and on the sidelines long before the trend line is crossed to the downside. Those readers with a more aggressive risk profile can use the crossing of the trend line as their “last line of defense” before heading to all cash.

Other readers use the straight crossing of the trend line as their sign to move in and out of the market no matter the percentage. As an individual you can do that by using this tool anyway you see fit. When you handle OPM (Other People’s Money), you are dealing with a different set of circumstances. Clients understand that whipsaws are part of the equation, but they expect that efforts are made to avoid them whenever possible.

That does not violate any trading rules; it merely is a smart thing to do. Case in point is the event of last week, when the domestic TTI sank below its long-term trend line by -0.4%. Remember, there are followers of this method who use the downside crossing as a trigger for setting up a short position, which means you want to be as certain as possible that a bear market has in fact started.

By not following last week’s peek into negative territory, we avoided not only a whipsaw signal as the markets subsequently rallied, but also prevented setting up a short position.

Again, looking at the big picture, the reason for following trends in the first place is to step aside prior to a bear market devastating a portfolio. Second, there is no need to get caught up in details that do not detract from this goal.

We have successfully avoided the brunt of the bear markets in 2001 and 2008, and I do not expect those results to change in the future whenever the next bear rears its ugly head.