This week’s sharp downside market activity has left a lot of investors somewhat breathless and wondering if a repeat of last year’s Many/June debacle could be on the agenda again. Or, could it be just a one week correction that can be overcome within a 6-week period just like at the end of February 07?

While no one has that answer, there are a few things you can do to handle any market correction without the usual emotional impact. Rather than seeking psychological treatment, or finding the nearest “mixologist,” as shown in the picture, here are some that I have found helpful:

1. Reduce your news intake sharply. There is no need to listen to the talking heads on CNBC and other financial channels. Their hyped up views will do nothing to calm your nerves; besides, they don’t know any more than you do as to what the market will do next.

2. Make sure that you know where your sell stops are supposed to be and enter your orders “after” the points have been clearly penetrated. Remember, even if you use ETFs, for sell stop purposes I recommend you only work the with day-end closing prices.

3. View your portfolio with the right mindset. Say, the current value of your holdings is $100k. That is not really correct, isn’t it? Unless, of course, you had liquidated all of your holdings at that very day.

A more realistic view of the view of the value of your portfolio would be to deduct your allotted sell stop percentage. For example, if you use my recommended trailing sell stop of 7%, then your $100k portfolio would be worth, in the worst case, only $93k.

You may not like looking at it that way, but it is realistic when the market stalls or retreats. It will help you to always focus on the “real” value instead of on a number that is not only subject to change daily but also totally out of your control.

If you can incorporate these 3 things into your day-to-day investing life, you will be able to keep your emotions at bay which, knowing that you have a plan to deal with uncertainties, will allow you to sleep better at night.

And if that doesn’t work, go ahead and visit the nearest “mixologist.”

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

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

The bears managed to pull the major indexes off their highs and handed the bulls a solid defeat. The markets had their worst week in 4 years.

Our Trend Tracking Index (TTI) for domestic funds/ETFs still remains +1.77% above its long-term trend line (red) as the chart below shows:

The international index has now moved to +2.58% 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.

Despite today’s sharp sell off, which was reminiscent of the one we experienced on February 27, our Trend Tracking Indexes (TTIs) stayed above their long-term trend lines, and therefore in Buy mode.

Both TTIs gave up ground, but are remaining above their dividing lines to bear territory as follows:

Domestic TTI: +2.79%
International TT: +4.12%

Due to the recent market rally, most of our sell stop points were not triggered. However, some small positions we held in FEZ, IWS, RYZAX were affected and will be liquidated. Further downside action will most certainly get us out of our Latin America holdings. Last Tuesday, I sold our “utility” positions due to lack of performance.

Track your sell stops, watch the major trend lines and don’t get caught up in the media hype.

As you know from my writings, there aren’t too many investment professionals, authors, articles and market philosophies I can agree with. My guess is that there are less than a handful of people in this country whose investment approaches I admire.

So, it’s really refreshing to occasionally come across an article that represents my view 100%. Al Thomas’ piece on “Tracking a Hot Market,” while written years ago, still applies nowadays. It’s timeless wisdom. He correctly states that most investors have no clue as to how to determine market direction. So they go out and hire a financial planner or broker who also does not know.

As a reader of my weekly StatSheet, you are familiar with my Trend Tracking Indexes (TTIs) which determine whether the major market direction is up or down. If you are so inclined, you could cut the umbilical cord and become independent of my data by creating your own directional indicator as Al outlines in his article.

I am currently reading his book “If it doesn’t go up, don’t buy it,” which reflects my beliefs exactly about the market place. Al pulls no punches about what’s wrong with the financial services industry (he’s been involved in the investment community since 1965). If you are a financial professional, you may want to read this book only if you are open minded as it exposes the many shortcomings of the industry, and there is a good chance that you will feel offended.

In the near future, I will further review this book. I am only saddened by the fact that Al Thomas (who is also a reader of my newsletter) already said all of the things about Wall Street, and the inept financial services industry, that have been on my mind for a long time.

With my ETF Master List now containing 497 ETFs, the investment choices are becoming definitely overwhelming to some. Using momentum figures, as displayed in my weekly StatSheet, makes it easy to sort out those performers that are worthy your attention and discard those which are heading in the wrong direction.

Here are the top five ETFs, which I have sorted based on YTD performance and grouped by reference to the famous Clint Eastwood movie bearing the same title:

The Good:
SLX +51.39%
EWZ +31.40%
EWY +37.25%
PXJ +35.92%
TF +35.33%

The Bad:
STH -0.04%
IXG -0.18%
KCE -0.39%
FXM -0.46%
FVD -0.48%

The Ugly:
KRE -14.86%
DCR -21.82%
TBH -25.32%
XHB -25.35%
ITB -33.37%

Keep in mind that this is just a snapshot in time. Look at this as a ‘big picture’ overview of YTD performance. It will tell you which areas to consider and, more importantly, which ones to avoid.

In a recent post I talked about the dangers of using leverage when investing and how it has helped this market to continue its run toward record highs.

Front page news at MarketWatch tells us some more details about the subprime debacle and its effect on two of Bear Stearns hedge funds, one of them which is down an amazing 91% for this year.

Minus 91%?

Hmm, I guess using sell stops to protect investor capital would be out of the question. Makes you feel kind of glad that you and the size of your portfolio aren’t qualified to participate in these kinds of ventures, doesn’t it?

To make their investors feel better, the company stated that “in light of these returns, we will seek an orderly wind-down of the funds over time.” Oh yeah, that sounds great. Be sure to hurry up, the investors could use the left over money to gas up their cars.

The High-Grade fund had $1 billion in assets while the Enhanced Leverage fund had about $600 million and via leverage they controlled more than $10 billion in mortgage related securities and other derivatives.

I can see why they would name one of their funds the “Enhanced Leverage” fund. What I don’t understand is how the other one can be called “High-Grade Structured Credit,” because of the involvement of subprime mortgages, which are anything but high-grade. The article further states that “the losses partly reflect unprecedented losses in the valuations of several securities with top AAA and AA credit ratings.”

I don’t get that. Either they did not really own AAA rated securities or the ratings were incorrect. On the other hand, maybe they simply misread the label “subprime” loans to mean “supreme” loans? We may never find out but the smart guy in this transaction has to be the hedge fund manager on the other side of these trades who made a killing for his clients.

I am sure the investors will get the obligatory “thank you and come again letter.” After some passage of time, Bear Stearns will come out with a “new and improved” hedge fund and solicit the same investors with promises of great fortunes. It’s business as usual.