Finally, a rebound effort did not fail as we’ve seen so many times in the recent past. While yesterday’s rally lost some steam during mid-day, the bulls did not give up and the major indexes closed at their high points for the day as the chart (courtesy of MarketWatch.com) shows.

With no news out of Europe to rock the boat, the focus remained on domestic issues. Energy stocks provided the ammunition for the rally along with auto sales, which came in better than consensus estimate. Pending home sales rose as buyers tried to take advantage of the $8,000 homebuyer tax credits before the April 31st deadline.

Our domestic Trend Tracking Index (TTI) bounced off its trend line after coming within +0.49% of breaking it to the downside. The move into bear market territory therefore has been postponed as the index has now moved +1.45% above it.

We will have to wait and see if this rebound has legs or will turn out to be another head fake, which is likely to happen if Europe events move back onto the front page news menu.

Yesterday, the market started out with a hangover from last week by dropping over 1% at the opening on reports of slower manufacturing numbers in China. The Euro hitting a 4-year low against the dollar did not help the cause for a rebound.

Meanwhile, positive manufacturing and construction spending reports here in the U.S. seemed to put a floor under the selling, and the markets spent most of the day clawing back and briefly dipping into positive territory.

The last 90 minutes of trading, as we’ve seen quite a bit over the past few weeks, turned the rebound into a win for the bears as the major indexes headed straight down and closed near the lows for the day.

Weighing heavy on sentiment was the Attorney General’s announcement late in the day that the government was launching criminal and civil probes into the oil spill. That pretty much eliminated any upward bias by turning another rebound day into a losing proposition.

Our domestic Trend Tracking Index (TTI) slumped as well and moved to within +0.49% of breaking its long-term trend line to the downside. A couple more of these down days will certainly push the TTI into bear market territory where it will join the international index (currently at -4.52%), which signaled a sell back on 5/7/10.

Once that happens, bear market funds/ETFs will certainly become a consideration again. However, right now it’s too early to be concerned about that, and we will have to wait and see how things turn out before making any other investment decisions.

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.