Last week’s rally, and the fact that our domestic Trend Tracking Index (TTI) is now within striking distance of a Buy signal, caused a number of readers to email with comments and questions.

Some old sayings such as “sell in May and go away” were quoted along with fears of whipsaws due to continued market volatility. Others were worried about economic fundamentals such as recession fears and large businesses like Citibank continuing to write-down massive amounts of losses.

What it came down to was the question “how can this market rally, when all other news is so gloomy?” Let’s look at some of the major concerns:

1. “Sell in May and go away.” Sure, that line is based on the fact that at sometime in the past this might have been a good decision, and I’m sure it will be again in the future. However, there have also been tremendous market rebounds, which lasted through the summer; so using that as basis for making investment decisions it simply not wise.

2. Yes, fundamentally, when you look at just about all economic data, a recession is said to have started a few months ago and, despite current market behavior, which is based on the fact that a bottom in financial assets has been reached, this up trend could very well reverse again.

Here’s were I differentiate between my view of the fundamentals and my investment methodology. My economic view currently supports a recession scenario, massive further write-downs, higher unemployment and a host of unknowns, all of them negative for the market.

However, that fundamental view and opinion has absolutely nothing to do with my investment decisions. I follow trends and when it’s time to move into the market, I will do so based on momentum figures. I simply accept the fact that I can have a different view of the world than my investment plan dictates, because with that plan I have removed the emotional and subjective factors.

Looking only at fundamentals creates such a huge number of variables which I can’t assess, so I simply remove most of them by strictly following price action via trends.

3. More write-downs are coming, that’s a pretty safe bet. The key is whether they come as a surprise to the market place (bad news) or are anticipated, because they turned out better than the worst scenario. For more on bean counter accounting in the case of Citibank’s $5 billion write down, see Mish Shedlock’s article “Digging into Citigroup’s numbers.”

4. Whip-saw fears. Last week I posted Whip-saw thoughts and offered some ideas as to how to handle them.

There is one absolute sure way for you to avoid any whip-saw signals: Don’t invest! Other than that you simply have to accept them as a part of doing business. The key is to keep the losses manageable. This is why I continue harping on the trailing stop loss.

Getting whip-sawed and becoming afraid, could be hazardous to your financial health. Let’s take a look at the following chart:

As you can see, in this scenario, a whip-saw signal was followed by the resumption of the major trend, which more than made up for the small loss taken. While things will not always work out as in this example, it demonstrates the fact that you need to remove all emotional and subjective decisions as much as you can.

No, it’s not easy, but all successful long-term trend followers have learned this “secret” and so can you. Remove as many variables from your decision making process and focus only on what truly matters: Where is the trend headed?

A week ago, MarketWatch featured an update on the Dow Theory, the oldest market timing system in existence. Editor Richard Russell made an announcement that he now believes that the stock market has been in a primary bull market since the early 1980s:

The lows of October 2002 and January 2008 therefore represent nothing more than “important secondary or cyclical correction-bottoms.”

How soon will the stock market recover its losses of the past six months and reach new all-time highs? Russell’s crystal ball is less clear in answering this question; he simply writes that it will happen “somewhere between 2008 and 2010.”

OK fine, so we’ve been in a bull market since 1980. You saw your portfolio drop some 50% during the bear market of 2000 – 20002, but hey, no big deal, because we were still in a long-term bull market. Knowing that, don’t you feel much better now?

It is totally irrelevant what you call this period; the fact is that it was not an uninterrupted up trend that would have justified you sitting on you bullish portfolio. While it is very easy to philosophize about it years later, as this article did, it does not address the pain and suffering most investors went through during the last bear market even if it now appears to be only a tiny blip on the radar screen.

Richard Russell calls these blips “nothing more than important secondary or cyclical correction-bottoms.” Maybe they are just that but, given the negative long lasting impact they had on most investors, they still need to be avoided at all costs.

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

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

Two strong up days pushed the major indexes to their best week in 5 years. We are now in striking distance of a domestic Buy signal.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has moved now +1.43% above its long-term trend line (red), which means we are close to breaking out to the upside of the neutral zone.



The international index dropped to -3.07% below its own trend line, keeping us in a sell mode.



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

The markets took off yesterday after some decent first quarter earnings reports from eBay along with bullish guidance from Intel pushed the Dow to a 257 point gain. Helping matters were better-than-expected numbers from JP Morgan Chase and Wells Fargo. Sky-high crude oil prices did not seem to matter.

IBM’s after-hours bullish report, along with raised profit guidance, could fuel the rally, at least for the short-term. The positions of our Trend Tracking Indexes (TTIs) improved as well and in the domestic arena we have now moved back to the upper end of the trading range:

Domestic TTI: +1.05%
International TTI: -4.13%

Again, to move out the neutral zone and into an all-out domestic Buy signal, we will need to pierce the upper end of the trading range at +1.50% and stay there for a few days. Until then, we will remain mostly on the sidelines, but may take small positions in those indexes that already have pierced through to the upside and are beginning to establish a new trend.

The WSJ had a feature on Barclays Global Investors new launch of an all-world stock fund, the exchange traded iShares ACWI Index Fund (ACWI). Here are some highlights:

Early this month, Vanguard Group announced plans to launch Vanguard Global Stock Index Fund. Vanguard’s first global index-tracking fund will offer both exchange-traded shares and traditional mutual-fund shares.

But Mr. Wiener argues that an actively managed fund may be a better bet for all-world investors — even those looking for low-cost options. He points to Vanguard Global Equity Fund (VHGEX), which charges expenses of 0.64% and has substantially outperformed global stock benchmarks over the long haul.

While such an ETF may provide some value in the future, don’t be swayed to jump right in. I for one will want to see price activity for some 9 months in order to be able to identify a trend.

Don’t fall for “using these global index funds as core funds,” because that means buying and holding no matter what. With the uncertainties in the market place, there is not one fund/ETF around that would qualify to be held without regards to market direction.

To survive these tumultuous times with your portfolio intact, you have to be sure that you are always on the right side of the market. That means you need to adopt the time tested saying “let the trend be your friend” when making any kind of investment decision.

I received several e-mails from readers who are “angry” with the market direction or at least their interpretation of it. When the domestic Trend Tracking Index (TTI) moved closer to the lower end of the neutral zone a few weeks ago, some investors apparently ended up being a little premature as they initiated substantial short positions. Some committed up to 30% of portfolio value.

As is often the case, when trends can’t be clearly defined, the markets can move sideways and/or back to the higher end of the neutral range causing some whip-saw losses. As you know from my updates, I have repeatedly cautioned not to make to early of a commitment either on the long or the short side.

It is important to accept the fact that the market is never wrong. You can be wrong or you can be right, but still lose money because your commitment happened to be too early. If your timing is off, just be sure to limit your losses via my recommended sell stops.

You have to be big enough (and forget about your ego) to accept the fact that you will be wrong at one time or another. The only way I know of how to deal with being wrong is to cut your losses short and forget about them. Prepare yourself for the next opportunity as well as the next trend, which is sure to come along; we just don’t know yet when.

Thanks to Michael Covel, whose book “The Turtle Trader” I reviewed a few weeks ago, I found a link on Michael’s website to a song created by Ed Seykota, a long time super-successful trend follower, whose blue grass band perfectly interprets and offers solutions to the whip-saw problem.

It’s a well done music video and you can watch it by visiting this link.

Enjoy!