In my advisor practice, my mode of operation is to use both, ETFs and No Load Mutual Funds depending on what I’m trying to accomplish. Generally speaking, I prefer ETFs when investing in more volatile areas such as sectors and countries. This eliminates the problem of possibly increasing costs by having to deal with early redemption fees.

Of course, my main criterion for using either is the performance and ranking as per my M-Index. After all, only performance will grow your portfolio. However, if your preference would be the use of no load funds, how could you circumvent frequent trading rules and other charges?

MarketWatch featured a recent story titled “Trading Places,” which describes the benefits of having an account at a progressive fund company such as ProFunds. Having an account there entitles you to trade as frequently as you wish among ProFunds’ 13 single-beta funds and money market fund. Additionally, you have access to leveraged and inverse funds.

ProFunds momentum data are listed in my weekly StatSheet for easy tracking. Rydex has a similar program you might want to look into. If your preferred investment vehicle is mutual funds along with the freedom to trade as you wish, you owe it to yourself to check these companies out.

Disclosure: I have no affiliation with either company or any investments in any of their funds at this time.

Continued volatility had the bulls and bears in a tug-of-war all day. Rallies, as well as pullbacks could not be sustained and we ended up essentially unchanged. I believe that this kind of uncertainty will stay with us into next week when the Federal Reserve meets to decide if any changes in interest rates are warranted.

Our Trend Tracking Indexes (TTIs) meandered as well and are hugging their respective trend lines as follows:

Domestic TTI: +3.05%
International TTI: -0.06%

Given the current up and down in the market place, I won’t read much into the fact that the international TTI just slipped below its trend line. As I previously said, my exit point for my international positions will be a 7% trailing stop loss. Surprisingly, they closed up for the day. Go figure.

Mark Hulbert of MarketWatch wrote a piece about a technical indicator that I had never heard of. In regards to the recent low volume days he says that there is one aspect that might actually quite bullish: On three of the past trading sessions, stock market volume triggered a bullish technical signal known as a “Nine To One Up Day.”

Here’s how this phenomenon is described:

This signal is based on the volume of all New York Stock Exchange-listed stocks that go up on a given day, expressed as a percentage of the total volume of all stocks that rose or fell on that day. On a day when rising stocks’ volume is the same as declining stocks’ volume, for example, this ratio would be exactly 50%.

A “Nine To One Up Day” occurs when this ratio is 90% or higher. According to Martin Zweig, who helped to develop this indicator several decades ago, such a huge imbalance of up volume over down volume “is a significant sign of positive momentum. In other words, when daily up volume leads down volume by a ratio of 9-to-1 or more, that tends to be an important signal for stocks.” The quotation comes from Zweig’s 1986 book, “Winning on Wall Street.”

He details further how this indicator is used and quotes other statistical tests. Personally, I don’t have an opinion either way, but I am constantly amazed at what arguments people try to come up with to support their case, be it bullish or bearish.

In my view, it is totally irrelevant whether you are bullish or bearish, what matters is the direction the market is taking, which it will do with or without your bias. Most investors would be better off to discard their opinions and only pay attention to where the market is headed and not where they think it should head. Eliminating these kinds of emotions is done best via trend tracking.

Determine the trend, establish your positions and provide for contingencies via an exit strategy. That’s all there is to increasing the odds of a successful investment in your favor.

Very slowly, I have been trying to digest Nassim Nicholas Taleb’s book “The Black Swan.” It’s an incredible piece of work about the impact of the highly improbable.

Nassim explains that an improbable event has 3 characteristics: It is unpredictable; it carries a massive impact; and, after the fact, we concoct an explanation that makes it appear less random, and more predictable, than it was.

The astonishing success of Google was a black swan event; so was 911 (you can add Microsoft and a host of other companies to this list, including any past bear market events). For Nassim, black swans underlie almost everything about our world, from the rise of religions to events in our own personal lives.

Why do we not acknowledge the phenomenon of black swans until after they occur? Part of the answer, according to Nassim, is that humans are hardwired to learn specifics when they should be focused on generalities. We concentrate on things we already know and time and time again fail to take into consideration what we don’t know.

For years, Nassim has studied how we fool ourselves into thinking we know more than we actually do. We restrict our thinking to the irrelevant and inconsequential, while large events continue to surprise us and shape our world. In his book, Nassim explains everything we know about what we don’t know. He offers surprisingly simple tricks for dealing with black swans and benefiting from them.

This is not casual reading but very demanding, and it requires your full focus. If you like a challenge, and learn how to look at the world with a slightly different view, this book is for you.

Even though ETFs represent “only” indexes for just about every conceivable investment orientation does not mean that they don’t have any muscle to propel your portfolio higher. A quick look at my dbase containing over 1,200 no load funds and some 500 ETFs shows that the 2 top performers (based on my M-Index ranking) are ETFs, namely FXI and PGJ.

Disclosure: While we hold small positions in FXI, we have none in PGJ.

It’s not secret that FXI has been the top performer last year; however, its tremendous volatility has kept many investors from taking the plunge. How can you participate in that powerhouse investment without taking too much risk?

For some of my more aggressive clients, I have taken a 10% position. During the recent market roller coaster, FXI lost 6% on some days and gained 5% on others. On balance, the week we purchased it turned out OK with a 5.25% gain.

Here is a plan you can follow if you are aggressive and attracted to the long term prospects of China via an investment in FXI. Ease into the market via a 5% position and, if it goes your way, add another 5%. The crucial part is to have an exit strategy in case this investment goes against you. I recommend a 10% trailing sell stop on your positions.

What’s the risk? If you invested 10% into FXI and got stopped out with a 10% loss, the total effect on your portfolio would be a negative 1%. If, however, FXI moves higher, as in the above example, and gives you an immediate 5% gain, you will have cut your risk in half.

If your risk tolerance is above average, this may very well add some desirable firepower to your portfolio.

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

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

Sharp downside action caused by a weak payroll report pulled all major indexes lower, but the current Buy signals were not affected.

Our Trend Tracking Index (TTI) for domestic funds/ETFs moved lower to +2.91% above its long-term trend line (red) as the chart below shows:



The international index also remained +0.60% above its own trend line, keeping us still on the positive side.

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