Technical Analysis: Is It Time To Take Profits?

Ulli Uncategorized Contact

I am in favor of any investment methodology that uses some type of reasoning for getting into an investment and, more importantly, getting out of it to either take profits or to limit losses.

Any such approach is better than the mindless “Buy & Hope—things will somehow work out in the long-term” way of thinking. While I am admittedly biased towards tracking trends, others use technical analysis to arrive at some kind of conclusion as to when to be in the markets and when not.

The article “Time to take Profits on S + P 500” describes seasonal tendencies and what resistance levels to look for. For the S&P; that translates into 1,528, which is the old high made in 2000. While technical analysis deals with many other issues, such as overbought conditions, keep in mind that just because an index has reached that level, it can stay there for a long time and a sell off is not necessarily imminent.

I have used some of these indicators 25 years ago, but found them not to be as reliable as the use of a trailing sell stop or the crossing of a major trend line. However, while technical analysis has some great tools, nothing beats following actual market behavior via clearly defined exit points to determine when it’s time to take the chips off the table.

Mortgage Backed Securities: Can They Affect Your Mutual Fund/ETF Investments?

Ulli Uncategorized Contact

Even though I am not specifically looking for it, I seem to come across articles dissecting the potential effects of either the SubPrime Loan debacle or the real estate bubble.

This latest one offers a sobering analysis of losses sustained from mortgage backed securities (MBS). While it has been estimated that so far some $100 billion has been lost, the potential is far higher as home prices decline.

I am not bringing this up to dwell on negatives, but to simply make you aware that the consequences of the housing bubble, and the reckless lending practices that accompanied it, can and will have far reaching effects.

If, as the article points out, the sea of losses in the MBS area continues (with a potential of trillions lost), your investments in mutual funds and ETFs will most certainly be affected. While this could be only one of many reasons for a nasty slide in the market, just be prepared and don’t become complacent.


If you manage your own investments, follow my suggested sell stop discipline; or any sell stop discipline for that matter! Yes, it sounds like an old hat. But it’s the only way I know of to keep your portfolio intact if/when this bubble deflates like a hot air balloon.

Trend Tracking And The S&P 500

Ulli Uncategorized Contact

With the S&P; 500 having finally closed above the 1,500 level for the first time since Sept. 7, 2000, let’s look at a bit of recent history. Incidentally, that date occurred just 1 month prior to our Trend Tracking Index giving an all out sell on Oct. 13, 2000.

This broad based index made its all-time high of 1,527 on March 24, 2000. The markets whip-sawed sharply throughout the remainder of the year until all major indexes slid into bear market territory which lasted until the lows were established. This happened in October 2002; about 2 years after our sell signal had moved us to the safety of the sidelines.

Why bring it up?

The press has been reporting about the incredible recovery as the S&P; 500 rallied 93% since the low made on Oct. 9, 2002. This does not mean that anybody recognized that low point, invested 100% of their money into the S&P; 500 and actually gained 93%. It’s simply a number—but a misleading one.

Let’s look at something more realistic as far as portfolio history is concerned. If you had held on to the S&P; 500 when we sold on Oct. 13, 2000, you would have gained (via Buy & Hold), from that moment in time, until May 3, 2007 a grand total +9.33%! That is over a 6-1/2 year period.

Not very often will you read numbers in the press that include bear markets when looking at long-term performances. All you ever hear are figures that reflect recoveries from an index’s low point. No one can identify a low point as it occurs; it can only be recognized after it actually has happened.

This is the problem I have with the Buy & Hold scenario. Most investors don’t realize that their financial life is much shorter than their physical life. There’s a good chance that you may live to your 80s, but you only work maybe some 45 years. Wasting a large part (some 14% in the above example) of your financial life on simply trying to make up what you lost makes no sense to me.

That’s why my emphasis (via trend tracking) has always been on bear market avoidance rather than measuring to see if I’m ahead of S&P; 500 performance every quarter or every year. If I can avoid the worst part of a bear market scenario, I will automatically be ahead of the S&P; 500 as the most recent 7 years have shown.

That’s my view, what’s yours?

No Load Fund/ETF Tracker updated through 5/4/2007

Ulli Uncategorized Contact

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

The markets marked their 4th week in a row of closing higher.

Our Trend Tracking Index (TTI) for domestic funds made new highs as well and now sits +6.17% above its long-term trend line (red) as the chart below shows:

The international index rallied into record territory and has now moved to +10.83% above its own trend line, as you can see below:

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

How High Can This Market Go?

Ulli Uncategorized Contact

That was the question new newsletter reader Jack asked yesterday as we were discussing my trend tracking methodology.

As an experienced investor, he was looking at all the fundamentals that can drive the markets ranging from corporate deal making to stronger than expected earnings and outlooks. Oh yes, and the revised forecast from Thomson Financial changing their S&P; 500 1st quarter earnings projections from (only a few weeks ago) 3.3% to over 8%.

Nevertheless, Jack was trying to figure out what the market might do next based on fundamentals. There is an easy answer which is that ‘nobody knows.’ The markets are so complex and intertwined that no individual, no matter how sophisticated his computer system may be, can analyze all facts in such fashion that he could come to a definite conclusion as to what the market will do next.

As an investor, Jack simply has to come to terms with the fact that “he does not know and never will.” However, one thing is for certain that all known fundamental facts are immediately reflected in the price of the underlying security.

This certainty has become the basis of trend tracking. We can measure where the ‘major’ trend in the market is. It can only go up, down or sideways. That’s it. Jack needs to accept that he does not have to drive himself crazy by following every bit of news information. He simply needs to be on the correct side of the trend.

That will allow him to establish his investment positions and provide for contingencies via an exit strategy. If he does just that, he will sleep much better at night and will be in control of his investments as opposed to the other way around.

So, how high will this market go? I have no clue, nor do I care to guess.

Turning ETFs Into A Casino

Ulli Uncategorized Contact

I can’t believe that this could actually be true. A story in the Money section of the NY Daily News features a new series of ETFs called StateShares that allow you to buy or sell portfolios based on 21 state specific stock indexes. Each of them contains some 50 issues. There will also be a composite of 500 stocks available based on these state indexes.

In other words, if the mood strikes you, you can be long California and short Texas. No, I really didn’t make this up. Had the date of this story been April 1st, I might have caught on quickly, but April 30th?

To me it seems like a glorified gambling attempt; I simply can’t see where having these types of ETFs would add value to an investor’s portfolio.

Am I missing something?