When referencing articles written by others on subjects of interest for this blog, I usually align myself with those whose viewpoints I share and value. Occasionally, I run across an opinion which does not resonate with me at all.

This happened to me a couple of days ago when I watched the following video clip on MarketWatch:

http://www.marketwatch.com/video/asset/5-reasons-to-be-bullish-2009-09-03/6817A216-C916-4167-BE38-E217E84346E6

I must admit that I simply can’t agree with any of the five arguments made, because they simply do not consider any economic reality, at least not from my way of thinking. But then again, neither did the market over the past few months.

Here’s an opposing forecast that almost reminds me of Harry Dent’s prediction of the Dow 30,000 some years ago, and we know what happened to that one.

During various recent posts, I touched on the importance of selecting ETFs with large volume to get faster and better execution along with lower bid/ask spreads. Reader TrendMan has this to say on the subject:

These new ETFs are like a run away train totally out of control. Investing is already complicated enough and now there will be hundreds more choices out there.

When it is all said and done really all most of us need are the following 4 one beta long ETFs like QQQQ, SPY, IWM, and maybe at times EFA as well as a couple of one beta short ETFs like PSQ and SH. If only two ETFs were to be used I would go with VXF long and SH short for myself. All these would be used at the appropriate times during each trend timing market cycle.

I agree with this assessment. Over the years, I have seen far more over invested portfolios than underinvested ones. What I mean by that is many investors diversify way too much. For example, a $100k portfolio does not have to contain almost 30 ETFs of every imaginable sector. 4-5 well chosen ETFs will be more than sufficient to capture the major long-term trends in the market place.

Even in a $1 million portfolio, I will use no more than 10-12 ETFs/mutual funds. You might consider this putting all of your eggs in one basket (or not enough baskets).

However, when using the trend tracking methodology (with sell stops) my mantra has always been that “you can put all of your eggs in one basket, as long as you watch that basket.”

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

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

Losses during the early part of the week proved too much to overcome, and the major indexes surrendered some ground.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has now crossed its trend line (red) to the upside by +6.07% keeping the current buy signal intact. The effective date was June 3, 2009.



The international index has now broken above its long-term trend line by +13.35%. A Buy signal was triggered effective May 11, 2009. We are holding our positions subject to a trailing stop loss.

The WSJ featured an interesting article with the intriguing title “Too Big To Ignore.” Let’s look at some highlights:

Not long ago, the mention of another new exchange-traded fund was enough to make investors and industry experts roll their eyes. With most of the newcomers pegged to increasingly esoteric measures—everything from the Swedish krona to cancer treatments—most investors stuck with older ETFs that tracked traditional indexes.

Mr. Ferri adds, though, that there’s no hurry to invest in the newest products. For now, it’s better to wait and see, he advises, and to stick with proven ETF products that have scale and liquidity on their side.

[Emphasis added]

ETFs are the hottest development of the past few years and a viable alternative to many mutual funds. They’re growing rapidly, and every major player wants to get a piece of the pie, so to speak, when it comes to management fees.

I agree that more competition will lower fees in general which, eventually, will affect mutual funds as well. However, just because there are lots of ETF choices, does not mean they are all good. I am in favor of sticking to proven products and letting newcomers show me some price action over a year’s period before I would seriously consider them.

The ETF Master List in my StatSheet still contains ETFs that are very tiny with not much volume, which I will gradually remove. My new rule will be not to feature any ETF unless it has at least $50 million in assets.

Investors were clearly on edge yesterday as the historically worst month for the market struck the bulls on the first trading day.

After an initial pop, it was straight downhill from there with no chance for a late day turnaround lurking in the wings. Everyone has been talking about the “bad” September and now that it’s here, we’ll have to see how it turns out. It’s only one trading day, and that does not indicate that a major trend reversal is at hand.

Our Trend Tracking Indexes (TTIs) retreated but remained comfortably above their trend lines and in bullish territory:

Domestic TTI: +5.57%
International TTI: +11.81%
Hedge TTI: +2.20%

Financials were the weakest sector and even relatively strong August auto sales could not reverse downward momentum. Of course, it’s the best kept secret that auto sales only showed strength because of the cash for clunkers stimulation gimmick.

It’s too early to tell if some sense of economic reality is finally setting in, or if this sell-off turns out to be short-lived with the bulls taking over the helm again.

In the end, what really matters is that you have a plan in place to deal with whatever scenario the markets throw at you. Not having such a strategy could be dangerous to your financial health.

Reader Jim had this to say regarding commodity ETfs:

I’ve been looking for an “all in one” commodity EFT. While researching I ran across an ETF symbol “LSC” that while not perfect might do the job. I was hoping to get your thoughts.

First, let’s look at a 1-year chart:



In case you are not familiar with LSC, Yahoo’s profile had this to say:

The investment seeks to replicate, net of expenses, the S&P; Commodity Trends Indicator Total Return Index. The index is a composite of 16 highly liquid commodity futures grouped into 6 sectors. It positions each of the sectors either long or short (except energy) based on its price behavior relative to its moving average.

LSC has been around for a little more than a year, so a trend line (red) can be applied as you can see in the graph above. The average volume has been over 92,000 shares a day which means, at the current price of 9.33, a trading value of over $850,000.

While the markets were open, I checked the bid/ask spread, which was 2 cents.

If your potential investment in this fund is fairly small, I don’t see a problem in getting in and out quickly. However, I don’t not like Jim’s “all in one” description as it may lead to the wrong conclusion that this fund can simply be bought and held.

As with all investments, you want to pick an appropriate entry point. To me, that moment in time occurs when the price (blue) rises above its long-term trend line (red). As soon as your order has been filled, you need to set up a trailing stop loss and track it daily.

I have no positions in this fund and neither have my clients.