Today marked one of the biggest market reversals in history with the Dow trading in a range of 625 points from low to high. With the recent drubbing of the major indexes, and the Fed’s emergency casting of a lifeline in form of a sudden 75 basis points interest rate reduction, it was only a question of time before the markets would stage a rebound. The million dollar question is if today was simply a bear market rally or the start of something permanent to the upside.

From my view, one day does not make a trend and, right now, I look at it what it is, a bounce in the market. Early this morning, we took the opportunity to liquidate some holdings in healthcare (IHF) and short real estate (SRS) as our sell stops were triggered.

Our Trend Tracking Indexes (TTIs) remained in bear territory, below their long-term trend lines by -0.49% (domestic) and -9.69% (international).

Yesterday, Jim Jubak posted an interesting article called “Where the bear will bite hardest.” Here’s a portion:

The last bull market myth still standing is now dead — at least in the minds of the many investors who believed that China and India could continue to power the global economy despite a slowdown or recession in the United States.

The danger of slowing economic growth is a months-old story to U.S. investors — one reason that the major U.S. market indexes are currently flirting with the 20% loss that defines a bear market. But it’s something new for investors in overseas markets, many of whom thought that those economies would be immune to a U.S. recession.

My indexes confirm his view and, until proven otherwise, we will remain in cash with the bulk of our assets and try to take advantage of select opportunities as they present themselves.

Thanks to the Fed’s stunning and surprising announcement to cut interest rates by 75 basis points, a melt-down in the domestic markets was largely avoided. After the Dow having been down some 460 points in early going, and closing down “only” 128 seemed to feel like a victory.

Yesterday, world markets got absolutely hammered and the same was about to happen on Wall Street this morning. While the Fed’s move prevented the worst, it doesn’t mean all wounds are healed. Quite the opposite! Many view today’s reduction in interest rates, only 9 days before the next Fed meeting, as a desperation move and an admission that economically we’re in worse shape than generally assumed.

While I believe that at this point the major trend is towards lower prices, I can never be 100% sure, since after this month’s drubbing a rebound is certainly a possibility. While I have added a small short position to cover some of our few sector holdings, I am also watching for any signs of trend reversal and will pull the trigger to go to all cash if market behavior dictates such action.

I received a reader e-mail that touches on a common theme, so I’ll share it with you. “D” writes as follows:

I really enjoy all your comments and efforts! Can you let me know what you’re looking for regarding when to short the market, and if you’re shorting and what you’re shorting? I really appreciate your input! I have lost so much money this week! Looking to try to make it up!

At 62, on social security, you get a little desperate. I’m hoping to make it up on a 2 beta short, please give me your opinion on all the questions, I threw at you. I will really appreciate that. I really enjoy all your comments, and trust in you.

I appreciate that this reader enjoys all of my comments, but she won’t like this one. There are too many things simply wrong with her thinking.

First, she’s been a reader since about August 07 and writes that she has lost a lot of money this week (the week of 1/14). How can that be? I’ve been harping on the use of a trailing sell stop every week, so if she followed that advice, she should have been out of her positions quite some time ago.

Second, she’s looking to try to make up losses by now using 2 beta short ETFs. What is this? A vendetta against the market? If so, she will come out a loser every time. Investing is not about desperately making up losses. It takes a careful systematic approach to make money. While you’re doing that, you will also have losing streaks which you have to accept for what they are. The key here is to control the downside risk so that you can live another day to keep investing. “D” has demonstrated that she can’t handle the long side of the market; there is no way she should dabble on the short side, since she apparently does not apply discipline to her decision making.

Third, she’s on social security and desperate. That is not the mindset to have when you are investing. It is a recipe for a financial disaster in the making. My suggestion is that this reader, given her circumstances, should not be investing at all; she should keep her money in a CD or money market account.

Market Commentary: With the domestic market heading sharply lower today—the Dow was down over 300 points at the time of this posting—I will write and publish an additional market commentary later on after the close.

I have touched on this topic last month, but more trouble is brewing with the potential further downgrade of leading bond insurance companies, which could cause another big wave of write-downs from banks and brokerage firms. Here’s what MarketWatch had to say:

Bond insurers agree to pay principal and interest when due in a timely manner in the event of a default — a $2.3 trillion business that offers a credit-rating boost to municipalities and other issuers that don’t have AAA ratings. Without those top ratings, their business models may be imperiled. A more worrying consideration is that when a bond insurer is downgraded, all the securities it has guaranteed are, in theory, downgraded as well.

“Assuming the “monoline” insurers lose their triple-A ratings, underlying insured muni bonds could be susceptible to downgrades and downward repricing, leading to losses for muni-bond mutual funds,” Michael Kim, an analyst at Sandler O’Neill, told investors in a note Friday.

Why is this important now? With the financial markets having moved into bear territory, continued bad news regarding huge write-downs will not sit too well with Wall Street and will not provide the ammunition needed to affect a major trend reversal. Additionally, from my non-economist point of view, it seems that if huge amounts of money in the tens of billions of dollars are written off, this will further impair many institutions to function properly and therefore make fewer funds available for day to day business loans and mortgages (credit destruction).

I am not sure if this will turn into a Black Swan event, but I suggest that you play it as safe as possible with your portfolios. If you are unsure about what to do, if and when to invest at all, simply don’t! Keep your money safely in a U.S. Treasury money market account because, in these uncertain times, protection of your assets should be priority one.

Getting 3% interest looks mightily good if the markets head south another 20% or 30%, and you might finally have bragging rights at the next cocktail party.

Are you too busy? Are you always running behind? Is your calendar loaded with more than you can possibly accomplish? Is it driving you crazy? You’re not alone, says Dr. Edward Hallowell, author of “CrazyBusy.”

Crazybusy—the modern phenomenon of brain overload—is a national epidemic. Without intending for it to happen, we plunged ourselves into a mad rush of activity, expecting our brains to keep track of more than they comfortably or effectively can.

In fact, as attention disorder expert and bestselling author Dr. Hallowell argues in his groundbreaking new book, brain overload has reached the point where our entire society is suffering from culturally induced ADD.

Crazybusy is not just a by-product of high-speed, globalized modern life. It has become its defining feature—BlackBerries, cell phones and e-mail 24/7; longer workdays, escalating demands and higher expectations at home. It all adds up to a state of constant frenzy that is sapping us of creativity, humanity, mental well-being and the ability to focus on what truly matters.

But, as Dr. Hallowell argues, being crazybusy can also be an opportunity. Just as ADD can, if properly managed, become a source of ingenuity and inspiration, so the impulse to be busy can be turned to our advantage once we get in touch with our needs and take charge of how we really want to spend our time.

Through quick exercises, focused advice on everything from lifestyle to time management, and examples chosen from his extensive clinical experience, Dr. Hallowell goes step-by-step over the process of unsnarling frantic lives. With CrazyBusy, you can teach yourself to move from the F-state—frenzied, flailing, fearful and furious—to the C-State—calm, clear, consistent, curious and courteous.

If you’re looking for some sound, sane and accessible guidance, this book maybe the resource you’ve been looking for. I highly recommend it.

This past week’s and year-to-date market activity was enough to cause major frustrations among investors and advisors alike. According to my Trend Tracking Indicators (TTIs), we’re now officially in bear market territory. However, markets can change and, as we’ve seen in the recent past, whipsaws can occur at anytime just about when you thought you had the trend figured out.

When that happens, as it does to me, you need to remember the fact that when you are applying an investment method such as Trend Tracking, that it has its weak points during times of uncertainty. That generally includes two market conditions:

1. When markets move sideways and
2. When markets transition from a major up trend to a major down trend and vice versa

In other words, when markets are not trending, trend tracking will not generate any profits. It will however, alert you to directional changes so that you can adjust your portfolio. During those times, you need to keep the big picture in mind, meaning that “trend-less” conditions are a temporary inconvenience we simply have to accept and live with. Sooner or later, the markets will break out of this pattern and new trends will be established.

Random Roger wrote a nice piece titled “You Said It Was A Bear Market, I Didn’t Say That,” in which he describes how he looks at this type of market and how it affects his mood. Here’s a portion:

It is natural for people to derive stress from their stock investments. One of the themes to my writing is that you should train yourself remove emotion from the equation.

If you are having trouble, remember there is more to life than watching your account tick up and down. Hopefully you can train yourself to remove emotion from what you do but if you can’t you should either spend less time on your portfolio (and more time exercising, balance right?) or make some strategic changes.

His view pretty much mirrors my opinion in that there will be times where you look like hero and times where you will simply lag in performance. To maintain the view of the big picture is crucial provided you are comfortable with and have faith in the investment methodology employed.

If you’re not, find an approach that matches your emotional make up; just be sure to stay away from the mindless Buy & Hold, as that is the surest way to watch your portfolio get destroyed if this bear continues to be in charge. Remember 2000 – 2002?