With the flood of ETFS being brought to the market, there was bound to be a new product following along as a new alternative to ETFs to confuse investors even more.

Such an animal did arrive and it is called Exchange Traded Notes, or ETNs for short. I’ve been hard pressed to find information on it, but Kiplinger had an article called “Exchange-Traded Notes: The Next Big Thing?”

According to them, here’s the difference between ETFs and ETNs:

“Both ETNs and ETFs act like low-cost index funds. Their differences are under the hood. An ETF consists of a portfolio of securities (or sometimes a cache of gold or silver bullion), and owning a share gives you claim to a small portion of that portfolio. With ETNs, however, there is no portfolio. You get what is, in essence, a bond issued by the ETN’s creator, Barclays. The ETN promises to repay the amount of your investment plus (or minus) the return of the index that the ETN tracks, less a management fee.”

The benefit to some seems to be in the way distributions are handled:

“ETNs don’t pay cash distributions. Instead, the value of dividends, interest and investment gains is lumped into the funds’ total return. So you won’t face any taxes until you sell your shares. And even then, any gains on shares held more than a year should be taxed at 15%, according to a legal opinion Barclays obtained.”

So, if you are looking for monthly income, this would not be a good choice. The bottom-line is that this product is new and needs to prove itself over time. At this point, I don’t have an opinion either way, but simply wanted you to be aware that ETNs exist.

Right in the middle of a continuation rally from yesterday, news about the subprime virus having infected another institution, took the legs right out from under a strong up move and turned it into another down day.

The trigger was American Home Mortgage’s admission that it was unable to borrow or raise money, which pushed its stock down some 90%. All major indexes suffered and our sell stop points have now been brought back into play again.

Only a few of our holdings have dropped to around -7.5% off their highs. I’ll follow the same rule I talked about yesterday in that I will watch market activity tomorrow for a couple of hours. If the markets are trending higher, I will wait another day before executing my stops.

If the trend is lower, I will sell the affected holdings tomorrow.

Reader Nitin sent me an article from BusinessWeek called “Five Reasons to Sell, Sell, Sell.”

It lists five of the biggest threats to the current stock market rally, which include:

1. Earnings

5. Shiny happy investors

All of these are items which I’ve discussed in various posts and comments, and every one them has the ability to derail the current bull market. Some have actually contributed to last week’s sharp pullback. If you are a casual reader of these types of articles, you may be prompted to liquidate your entire portfolio, and possibly watch the major indexes resume their upward march for another 6 months.

And that is the problem with these stories. They may be correct in outlining all of the culprits that will always affect markets to the downside, but that does not mean such an event is imminent.

This is why I continuously harp on the fact that these stories have no value when it comes to actually making a decision regarding your investments. At the risk of sounding like a used car salesman (no offense), stick to watching the major trend and follow your trailing sell stop points. Those are real numbers you can use to improve your decision making process.

As I mentioned last Friday, those funds/ETFs that had barely triggered my sell stop points were slated to be sold today. This plan was subject to confirming further market direction to the downside at today’s opening, to make sure we would not expose ourselves to a potential whipsaw.

So far so good! The markets rebounded nicely and pushed our holdings back below the 7% sell stop level. I will wait with any liquidation until the sell points have been clearly pierced to the downside before taking further action. It is too early to tell whether today’s rebound was just a dead-cat-bounce or the beginning of another leg in the bull market.

Last week’s 4.5% market correction pulled the rug out from under most assets. Based on my ETF Master list, which contains 497 ETFs representing just about every sector imaginable, I was curious to see which assets held up best and with ones suffered the most.

While obviously all bear market funds/ETFs had an up week, it is too early to get exposure to that area since the long term trend lines of the Trend Tracking Indexes (TTIs) are still in bullish territory.

Bucking the pullback last week (not counting bear funds) were the following:

TF (Country fund): +3.42%
FXY (Currency): +1.98%
USO (Oil): +1.60%
IEF (Bond): +1.41%

The only equity ETF to stay even was DIA (Large Value: +0.00%), all others went negative. The honors for worst performance of the week goes to IIH (Technology), which dropped an amazing -11.69%. That was closely followed by XME (Metals & Mining) with a loss of -10.99%.

My point is that very few areas survived last week’s pull back. There is no sense in trying to make adjustments to your portfolio at this time, since in the current corrective environment last week’s winners can easily be next week’s losers.

Stick to holding your positions subject to your sell stop rules and make adjustments into better performing sectors at a later time once the markets have calmed down and the direction of the trend becomes clearer.

Right now the markets are in no man’s land, and it’s anybody’s guess as to whether we are heading further south into bear territory or whether a turn around to greener pastures is imminent. This is the time to be patient and avoid making irrational decisions.

Not too long ago, I read Lee Eisenberg’s book called “The Number,” which tries to answer the life-defining question: “How much money do you need to secure the rest of your life?”

Obviously, I am a very interested party in that subject since that topic seems to come up quite frequently when talking to readers and clients. While he has some interesting analogies, I had to read through over 230 pages before finally encountering something that resembled a number.

It was somewhat agonizing to be left in the dark for 17 chapters of what “the number” might be. Finally, after what seemed like an eternity, on page 234, the author displays the following table: