With the markets having been on a tear since the S$P 500 made a new 12-year low on March 9, the question remains whether this move up is the beginning of a new major trend or simple another bear market hiccup.

Dr. Housing Bubble featured the table on the left showing the magnitude of bear market rallies during the Great Depression. He elaborated as follows:

Some people think that stock market rallies only happen in full on bull markets. That is not the case. In fact, some of the fiercest short term jumps happen when the economy is in utter disarray.

We also have the problem of interpreting math results. For example, everyone was cheering the 40 percent rise of Citigroup this week but forgot to mention that this amounted to 40 cents. You gained 1 quarter, 1 dime, and 1 nickel for each share you owned. The rally we are currently seeing is strictly a technical rally. Don’t fool yourself into thinking otherwise. It is the same as the Great Depression bear market rallies. We will test lows again soon. Maybe once those stress tests are released or when the 1st quarter results are announced starting in April of 2009. For the mean time, enjoy the bear market rally.

The investment community has always been and still is fascinated with trying to pick a bottom, and then ride the gravy train all the way to the top whether it is a bear market rally or not. Of course, getting in at the bottom is nothing but sheer luck as is selling at the exact top.

If you are a buy and hold victim, you are pretty desperate in trying to make up huge losses as fast as you can, which usually leads to bad decisions and even more losses. There is nothing wrong for an aggressive investor to take a chance and jump in early. However, without acknowledgement that an incorrect decision could have been made as well as a plan in place to get out again, before major portfolio damage occurs, is something that most ignore.

The above table shows that bear market rallies can be incredibly powerful and long in duration. They may even generate a buy signal for our domestic Trend Tracking Index (TTI) and get us back in an invested position. Since you can never be sure about the duration of an uptrend, especially given current economic times and circumstances, it is imperative that you have a clear plan in place as to how to deal with market adversity the moment you establish new investment positions.

Neglecting to do so will enhance your odds of seeing your portfolio getting pummeled when the rally runs out of steam, the bear resumes its trend and new lows are being made. These treacherous times are far from being over and if you decide to engage some outside help for portfolio management, be sure to ask the most important question: “What is your exit strategy?”

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

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

Continued upward momentum favored the bullish crowd, although weekending activity was negative.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -7.10% thereby confirming the current bear market trend. However, the Hedge TTI has signaled a buy, so be sure to check out the details in the weekly update.



The international index now remains -14.44% 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.

The markets were more or less meandering yesterday, when the Fed threw a long unexpected pass to Wall Street, which saved the day.

The assist came in form of an announcement (see arrow in chart) that they would inject some $1.1 trillion in an effort to support the economy.

Wall Street nodded approvingly, and the rally was on. The decision to leave interest rates unchanged was probably the worst kept secret, but the additional spending was a surprise. Here’s how the money will be doled out:

1. $300 billion will be spent on the purchase of Treasury securities,

2. $750 billion will be used to buy mortgage backed securities from Fannie and Freddie

3. $100 billion in debt purchases from Fannie and Freddie

There you have it. We are now in the stage of printing money to buy our own debt. This only indicates to me that the Fed is very worried about the economy and the housing market in general. From what I’ve read, this goes against what Fed Chairman Bernanke said last weekend that things should be improving later on this year. It again proves the old adage when it comes to official announcements that the key is to watch what they do and not what they say.

To view these actions as a positive for the stock market is simply looking at things on a very short term basis. While this current market rebound is great for traders, it can be a death trap for investors.

Until proven otherwise, I still see this present up move as nothing more than a bear market rally.

Last week, I posted “Who Supplies Your Investment Information,” in which Jon Stewart took a shot at CBNC’s quality (or lack thereof) of investment information. While you were probably enthralled with the current bear market rally, you may have missed the ultimate encounter between CNBC’s Jim Cramer and Jon Stewart.

I don’t watch CNBC, but seeing Cramer get dressed down on Stewart’s show with intellect and better arguments makes me wonder why anybody every would watch Cramer to begin with.

In case you missed it, you can view the encounter at this link:

http://www.thedailyshow.com/full-episodes/index.jhtml?episodeId=220533

I am feeling lighthearted today, so you may want to also view “The Buy and Hold Rhapsody” which, unfortunately, contains a lot of truth about what has happened to a lot of investors over the past 1-1/2 years. Enjoy:

A solid rally simply ran out of steam as yesterday’s chart clearly shows.

The Dow, which was up some 175 points at one time, gave it all back as bullish sentiment faded into the close.

Fed chairman Bernanke tried to chime in this weekend by attempting to spread a dose of optimism during a rare TV interview on ’60 minutes.’ His view of the recession coming to an end “probably” this year can’t be taken serious as he was of many officials who did not see the perfect storm brewing last year.

On a different note, reader GH pointed towards an interesting website, and especially a Podcast featuring Harry Dent and Mish Shedlock.

It’s about an hour long, but well worth the time listening as the host of the show has some not so kind words to say about ‘lazy portfolios,’ ‘buy and hold,’ ‘incompetent brokers,’ and several other issues that I have touched on from time to time.

Go to this link and scroll down the page until you see the Podcast icon. Then play or download at your convenience.

Several readers have already implemented some sort of hedging strategy to protect themselves from sudden market downturns against existing holdings.

One mistake I noticed has been what I refer to in my e-book as hedging apples with oranges.

Just because you are holding certain securities in your portfolio does not mean they are suitable for hedging. The best way to succeed is to make your fund selections with the purpose of hedging in mind and then pull the trigger when the Hedge TTI gives the go ahead.

Along these lines, one reader had this question:

When we implement the hedging strategy, do we need to pick up mutual funds which show positive returns in the last 3 months or 6 months or what?

Will appreciate your guidance.

Since the Hedge TTI is based on a short-term trend (10-week moving average), there is a good chance that only a few domestic funds and ETFs are showing any positive momentum figures at the time a Hedge buy signal is generated. Take a look at the domestic ETF tables and mutual fund tables of 12/25/08, just days before I initiated the Hedge.

You will also notice that M-Index rankings are still in negative territory. It is far more important that you select your funds/ETFs based on the Beta as outlined in the book. That should be your main criteria. If by chance your selected funds/ETFs are also showing positive momentum numbers, consider that simply a bonus.