Sometimes it pays to look at the big picture to see where we have been, where we might be going and what has changed.

Doing that will at the same time also answer a frequently asked question, namely how much time does the domestic Trend Tracking Index (TTI) spend in bullish vs. bearish territory. As you know, for me, the dividing line between being bullish and bearish is the 39-week moving average of the TTI.

Looking back some 18 years, from 1/25/91 to 3/31/09, it turns out that the price line hovers above the trend line 68% of the time, while we spent 32% below it. That means, just about 2/3 of the time, the bulls were in charge.

But that does not tell the entire story. This period included the 90s, during which, for the most part, you could have thrown darts at the mutual funds pages of your daily newspaper and picked a winner.

Times have clearly changed since we moved into this century and with it the ratio of bullish to bearish periods. Take a look at the table above and note that from 1/1/2000 to 3/31/2009, we have only remained in the bullish zone 52% of the time vs. 48% in bear territory.

My guess is that by the time this current bear market is over, the ratio may have even turned further in favor of the bears.

This century has surprised us with 2 bear markets which, as a result, have caused the S&P; 500 to lose 42% from 12/31/1999 to 3/31/2009 with many portfolios following a similar descent. If this pattern continues and, investors along with advisors don’t adjust from creating only bullish portfolio scenarios, the consequences obviously will be dire.

Why bring it up?

For one, we are now spending more time on the sidelines since the bullish periods have been reduced from 68% to 52%, at least during the past 9 years. This ratio change would be even more extreme if I were to compare the 1990s to the 2000s.

While being on the sideline has been very rewarding in sidestepping the bear markets of 2000 and 2008, it has also made me look for alternatives to increase investment opportunities by using new products, some of which have only been available for a couple of years.

I am talking about ETFs, of course, and the more recent introduction of inverse products. They have led to the introduction of my SimpleHedge Strategy, which offers possibilities during the 48% of the time when the bears have the upper hand. I have recently expanded on these ideas further by testing successful hedges using China, the Emerging Markets and the BRIC countries. I will publish those results in due time.

To be clear, these additions do not mean that the basic premise of trend tracking has changed. Our goal still remains to track the major up trends and be invested in these bullish phases when the opportunities present themselves. On the other side, it is just as important that we continue to follow our sell stop discipline and be out of the market to avoid getting caught in severe bear market slides.

In the past 6 months alone, we have seen a rally of 20%, a subsequent drop of 24% and a rally again of some 26%, which are clear signs of violent bear market behavior and uncertainty as to the longer term direction. Those, who participated in all three scenarios have not made much headway in terms of portfolio gains but had to endure major emotional stress tests.

The battle of wits between bulls and bears will go on forever, and we have no control over it. What we do have control over is our investment approach, and I believe that the addition of the various hedge strategies will allow us to better deal with the ever changing market conditions.

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

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

Despite sharp losses early in the week, the major indexes managed to claw back.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -2.82% thereby confirming the current bear market trend.



The international index now remains -4.09% below its own trend line, keeping us on the sidelines.

Hat tip to reader Rob for pointing to a very fascinating interview between Bill Moyer and William Black, author of the the book “The Best Way To Rob A Bank Is To Own One.”

You can view the video at:

www.pbs.org/moyers/journal/04032009/watch.html

It’s about 25 minutes in length, but I was so intrigued by what Bill Black had to say about the banking crisis, that it turned out to be time well spent.

Bill Black is the former senior regulator who cracked down on banks during the Savings & Loan crisis of the 80s, which makes him very qualified to to discuss current banking issues.

Hope you enjoy it as much as I did.

Inverse funds and ETFs have made it easier than ever for investors to play the short end of the market. Even double and triple-leveraged funds have been around for a while, and recently Direxion has added another group to its ever growing stable as SeekingAlpha reports:

Direxion, the provider of revolutionary triple-leveraged exchange traded funds (ETFs), is out with a new set of funds. This time, they come with exposure to Treasuries.

Also, Direxion will be changing the name of all of its ETFs to include the word “daily,” to better reflect that these funds seek daily investment goals and should be used only as short-term trading vehicles. Leveraged ETFs have become more popular, and along with that has come attention. Leveraged and short ETF providers have done a great job of educating investors about these tools.

All of these leveraged instruments have the potential to turn an ordinary investor into a gambling fool. Caution is advised and, unless you know what you’re doing, you better stay away from these hot potatoes. Wild price swings in either direction can do a number on your psyche as well as on your portfolio value.

To me, these instruments are used best in combination with a hedge strategy. I am looking forward to these Treasury Bull and Bear ETFs to establish some volume and price pattern over the next few months, and I hope to find a use for these tools in combination with a hedged income generation appraoch.

The stock market has been in a total disconnect mode from economic reality over the past 6 weeks all based on the glimmer of hope that an economic turnaround may be lurking on the horizon over next 6 months or so.

It’s too early to tell if yesterday’s sharp sell off means that the markets have shifted back to reality mode, or if this was a one day interruption of the recent rally.

This past weekend, Dr. Housing Bubble had this to about Wall Street being disconnected from Main Street:

The stock market at least in its current form is a horrible indicator of the actual economic carnage falling upon the majority of Americans. Most Americans are witnessing the current rally and wondering why the massive run up (largely in financial related stocks) is going forward while they are getting called into supervisor offices behind closed doors and being laid off or seeing their hours cut back.

The last few weeks have been great for the financial companies because they are now operating in a pseudo reality that is for the privileged few. These are the new financial overlords and all it took was the collapse of debt to show them for what they truly are. Many people for the last few decades have confused debt with actual wealth. That is a mistake we are now coming to terms with.

As always, Dr. Housing Bubble is right on with his observations, and I suggest you read the entire article if his viewpoints resonate with yours.

I still believe that this rebound over the past 6 weeks is a classic bear market rally. If you were fortunate enough to participate, and you regained some of your losses, you are well advised to implement some kind of sell stop discipline in case we are heading back south with the long-term bearish trend resuming its course.

Reader David emailed and had this to say about the recent discussion about the use of the SimpleHedge Strategy:

I have enjoyed your weekly newsletters and daily blog for some time. Thank you for sharing your knowledge and wisdom. I noticed a recent blog from ‘Foster’ concerning your simple hedge strategy where he used mutual funds as the long position. Some readers commented about using ETF funds.

I’m using ETF funds so I don’t have to worry about trading fee’s etc. I pay $8 per ETF trade.

I hope this helps some of your readers who may want to use ETF funds with the simple hedge.

To see what he has actually done, let’s look at my matrix again:



[Click on table to enlarge]

We have a slight discrepancy in total return, but that’s really not that important. What matters is that David has applied the hedge concept successfully to ETFs, since that is what he prefers using for his investments.

It does not really matter whether you use ETFs or no load mutual funds, as reader Foster described. What is important is that both understood the concept and applied it correctly.

I really have no preference either way, since my testing has shown that during some periods in time, ETFs prevail over mutual funds and vice versa.

I will continue tracking these two examples to show how they will fare in different market conditions.