Reader Mike decided to not to follow our last domestic Sell Signal (6/23/08), but he actually added to his investment positions. Here’s what he had to say:

I have been buying CGMFX over the last 6 weeks between $54 and as high as $60 per share. I have bought about $40,000 of it. It seemed to go up every time the S%P went down so I thought it was a good hedge. Lately, it has just been going down with oil prices and commodities.

Now I feel like an idiot for buying it at its peak. Should I just get out now?

Mike obviously went against the major trend hoping that the dip would only be a small one. This actually has happened many times in the past as readers have tried to use pullbacks as buying opportunities only to be caught in a bearish downdraft.

If you put yourself in this position, there are two things you can do, and they depend on your risk tolerance:

1. Sell all holdings now and chalk up the result as an expensive learning experience, or

2. Sell 50% now and put a 5% stop under the balance. That way, you have protected half of your assets from further declines and, should the markets rally from here, you have the other half working in your favor.

While CGMFX is one of the better mutual funds in existence, it still is not a buy and hold forever. Major trend changes to the downside will pull the best managed funds into bear market territory as well so the best course of action is not to own them in this type of environment.

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

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

A volatile market with an upside bias gave the bulls the upper hand.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -1.30% thereby confirming the current bear market trend.



The international index now remains -6.63% below its own trend line, keeping us on the sidelines.

For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

With the Olympic Games being upon us, I was reminded of a reader’s comment last year. China’s ETF (FXI) had come off its high by 10% causing us to liquidate our positions. This reader wrote in to say that he would hang on to FXI until after the Olympics and then get out.

I have heard this argument before that investors tie their financial decision to some future event that most of the time has nothing to do with actual market behavior. Let’s take a look at 2-year chart of FXI:



The decision to hang on proved to be a costly one, since FXI has come off its high by over 40% and has shown tremendous volatility this year. Despite wishful thinking, and the fact that Olympic events at times can light the fire for an economic rebound, this is usually only a short-lived phenomenon and should not be used as an investment opportunity.

Trends don’t lie, they simply state facts as they are right now, and the fact is that FXI is in bear territory. Until it solidly breaks back above its long-term trend line, I would not even consider it.

The bulls partied and enjoyed a swig from the punch bowl after oil prices broke below $120/barrel and the Fed, as expected, left interest rates unchanged. Bargain hunters stepped in doing some buying while short-covering helped the bullish cause.

It’s not secret that the Fed is stuck between a rock and a hard place. Yesterday, they chose boosting the economy by not touching interest rates as opposed to raising rates to contain inflationary pressures from higher energy and food costs as well as support the ever sagging dollar.

While the rally seemed impressive, it did not change the underlying fact the trend is still stuck in bear market mode. Our Trend Tracking Indexes (TTIs) are now positioned as follows:

Domestic TTI: -2.51%
International TTI: -7.32%

It was definitely a feel good day for the bullish crowd and several newsletter readers emailed telling me that they had taken the up day to unload some mutual fund positions they neglected to sell when our last signal was generated on 6/23/08.

We need to see a lot more upside movement and a break above the long-term trend line before we can declare this to be a new bull market. Until then, this is nothing more than a bear market bounce.

Seeking Alpha featured a story titled “REITs Pop While Commodities Flop,” showed a summarized table showing various assets class returns of various time periods. Let’s take a look:




While commodities were the hot item for most of this year, the trend has clearly reversed as the sharp 1-monht drop of DJP shows.

REITs, as represented by VNQ, have shown a nice pop to the upside, but are they worthy investment at this time? We’ve owned VNQ over a year ago before the real estate bubble burst, so let’s take a look at a 2-year chart again:

A chart is worth a thousand words. It’s is obvious that the long-term trend is still down, although back in May, this ETF showed signs of life. As is the case so often in bear markets, counter-trend rallies can be fast and furious, but they usually have no staying power.

It pays to be cautious, especially with real estate, residential and commercial, not having seen the end of the down trend. One day, VNQ may provide us with good upside potential again, but right now is not the time to be a gambling fool.

Based on reader email, I know that there are many investors out there itching to try to pick a bottom in the severely beaten up financial sector. It’s beyond my understanding why the desire to gamble is so prevalent in that area.

The Big Picture had some enlightening comments on the subject. Here are some excerpts:

Just when you think there is a glimmer of hope that some of these ne’er do well, lying, cheating, sniveling, cowardly bank CEOs might finally be forced to step up to the confessional and tell all, this comes along: FASB Postpones Off-Balance-Sheet Rule for a Year.

Investment Thesis: Ritholtz Rule #1: Know what you own.

Whoever buys Financials under these circumstances loses the right to whine down the road about companies not forthcoming. If you own them, don’t complain when you get what you deserve.

While this article focuses on the fundamentals, the technical aspects are equally disconcerting. The ETF IXG represents the Global Financial sector. Take a look at this 2-year chart:




If you follow trends, there is absolutely no compelling reason to make any commitment to this sector. As I said before, until all skeletons are out of the closet, any rebound will be to short lived, such as happened in May 08, before the bears started feasting on this carcass again.