With the market trends zigzagging, and our domestic Trend Tracking Index (TTI) having moved closer to its long-term trend line (+0.73%), a potential Sell signal has become a possibility again.

One reader had this question:

Would you please take a moment to elaborate on your sell strategy?

You will sell if the TTI falls below the 195 day MA. Will you sell even if the price of your mutual fund has fallen only by, say, 4%? Or will you wait till the price drops by 7% though the TTI has fallen below the 195 day MA?

Your posting on Trend clarification is great. But if you could elaborate on your sell strategy, it will benefit people like me.

My apologies if the question is unclear.

As I mentioned in my weekly StatSheet, I will liquidate my domestic holdings if the sell stop gets triggered or the TTI breaks below its long-term trend line, whichever occurs first.

At the end of the last domestic Buy cycle (1/18/08), all of our positions had been sold before the TTI pierced its trend line to the downside. Right now it appears, with the current buy cycle not even being a month old, that the reverse might happen.

Please remember that this in not an exact science. The goal is to be out of the market before major portfolio damage due to a possible bear scenario occurs.

If in fact we head further south, and the Trend line gets violated to the downside, I will sell or neutralize my domestic holdings. What that means is that I have basically two options:

1. Sell all domestic mutual fund/ETF holdings outright, or

2. Sell all domestic ETF holdings, but hold the mutual funds and add an equal amount of short positions to offset the potential drop. In other words, I would be market neutral at that point.

The first choice is pretty clear, so why would I consider the second one? The main reason is that we have only held the mutual funds for a month and are still subject to the 90-day short-term redemption fees. While the fees have become relatively modest ($49.95 at my custodian), some mutual fund companies may not like the short-term sale and could ban me from further trading.

This is an option that was available a few years ago, and I may very well consider it. The short S&P; 500 (SH) ETF lends itself to such a transaction. If subsequently the markets go one way or the other, I can then later on remove the hedge and become net long or short again.

If you find yourself in a similar situation in regards to your mutual fund holdings, you may want to consider this kind of approach.

Last month, I referenced Lee Iacocca’s new book “Where Have All The Leaders Gone?” I finally got around to reading it, and I have to admit that it was one of the more inspiring books I have come across in a while.

Provocative and timely, the most widely recognized business executive of all time asks the tough questions that America’s leaders must address:

What is each of us giving back to our country?
Do we truly love democracy?
Are we too fat and satisfied for our own good?
Why is America addicted to oil?
Do we really care about our children’s futures?
Who will save the middle class?

A self-made man who many Americans once wished would run for president, Iacocca saved the Chrysler Corporation from financial ruin, masterminded the creation of the minivan, and oversaw the renovation of Ellis Island. He believes that leaders are made in times of crisis—such as today.

Iacocca has known more leaders than almost anyone else—among them nine U.S. presidents, many heads of state, and the CEOs of the nation’s top corporations—and is uniquely suited to share his wisdom, knowledge, and wit about the leadership in America.

Author of previous number one bestsellers, Lee Iacocca famously doesn’t mince words and offers his no-nonsense, straight-up assessments of the American politicians running for president in 2008, including Hillary Clinton, Barack Obama, and John McCain.

Knowing that the times are urgent, the iconic leader shares his lessons learned and issues a call to action to summon Americans back to their roots of hard work, common sense, integrity, generosity, and optimism.

It’s a fascinating, uplifting book to read, and I for one couldn’t wait to finish it.

TheStreet.com featured coverage of 37 new ETFs including a ranking which combines risk and performance data combined into a single composite opinion represented by a letter. Here’s a partial view of the table featured:


double click to enlarge

I have been tracking some of these in my weekly StatSheet. The problem with the type of rankings featured here is to find a proper entry point. Let’s take a look at some snippets from the story:

With an initial rating of E, investors in the HealthShares Ophthalmology ETF(HHZ – Cramer’s Take – Stockpickr) are seeing red after losing 40.20% in a year. Over the same period, the holdings providing the worst of the damage include ISTA Pharmaceuticals Inc(ISTA – Cramer’s Take – Stockpickr), off 77.25%; LCA-Vision Inc(LCAV – Cramer’s Take – Stockpickr), off 75.12%; TLC Vision Corp(TLCV – Cramer’s Take – Stockpickr), off 74.70%; and Opko Health Inc(OPK – Cramer’s Take – Stockpickr), off 65.21%.

Also, speculators expecting fat returns from the E- rated HealthShares Metabolic-Endocrine Disorders ETF(HHM – Cramer’s Take – Stockpickr) ought to be roundly disappointed with a loss of 36.55%. The one-year loss of 89.61% from Nastech Pharmaceutical(NSTK – Cramer’s Take – Stockpickr), 82.12% loss in shares of MannKind(MNKD – Cramer’s Take – Stockpickr), and 72.18% drop in Altus Pharmaceuticals(ALTU – Cramer’s Take – Stockpickr) contributed most to the investor account shrinkage.

As you can see, this is volatility and losing money at its finest. If you like gambling, this is for you. Jumping into these types of ETFs without use of sell stop points can expose you to losses of some 80% although, in all fairness, some funds like GXC gained some 46%.

Nevertheless, following any ranking scheme blindly, will expose your portfolio to gigantic losses probably more often than huge gains. Keep in mind that no matter which investing approach you prefer, the entry point is important, but the exit strategy will save your bacon.

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

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

A double punch of high unemployment and even higher oil prices sent all major indexes down for the week.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has moved lower but remains +0.73% above its long-term trend line (red).



The international index dropped as well and now remains -4.33% 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.

In a follow up to my post “Which Trend Line Should You Use,” one reader had this to say:

I am a bit lost. Since your TTI is proprietary, how would one know when the, say the Latin America index and the EWZ as the fund to select crosses your TTI? One must develop their own TTI. Your TTI, to my understanding is not just a MA (Moving Average).

Could you please clarify?

There are many new readers to this blog and my newsletter, so let me review some of the particulars to avoid confusion.

First, there are only two Trend Tracking Indexes (TTIs), the domestic and the international TTI. While the composition is proprietary, they both are to be used with their own individual 39-week moving averages (M/A).

In general, the domestic TTI generates a Buy signal when it crosses its own 39-week M/A to the upside. This Buy signal only applies to widely diversified domestic equity funds and ETFs.

The international TTI generates a Buy signal in the same way when it crosses its own 39-week M/A to the upside. Here the Buy signal applies to widely diversified international funds/ETFs only.

The numbers for both TTIs are announced in my free weekly newsletter and in this blog, when critical points are reached and action is required.

Second, investing in sector and country funds is independent of the position of the TTIs. I use each sector’s or country’s own 39-week M/A to arrive at a Buy signal in conjunction with the momentum figures as outlined in the weekly StatSheet. You can read the latest issue here.

No matter which market we invest in, we always prepare our exit strategy at the time of the purchase. For the domestic and international TTIs, I currently use a 7% trailing stop loss point and for sector and country funds, I use 10%. Be aware that these sell stops are based on closing prices only and not intra-day market action.

Tuesday was one of those days in the market where there seemed to be no place to hide. Whether you held some currencies, gold, energy, technology, domestic funds, Emerging/Latin countries or the Commodity Index, you only found red numbers on the computer screens.

The push to the downside was mainly caused by further weakness in the financials, as rumors swirled all day that Lehman Brothers may have to raise billions of dollars in more capital and that they may have borrowed emergency funds from the Fed’s discount window. That rumor was vehemently denied all day, but the damage was done, and major indexes closed down.

Not helping matters was Fed chairman Bernanke’s position that interest rates were “well positioned” to promote growth and stable prices.

To me, the Lehman Brothers story confirmed again that not all is well with the books of major financial Wall Street firms. The Subprime/credit crisis is alive and well and will continue to haunt the markets via sudden sell offs if there are negative new stories being unleashed.

It’s too early to tell for sure, but maybe we are slowly reaching the point where Wall Street is no longer in denial that the credit crisis has passed. From my viewpoint, it may only take one more casualty like Bear Stearns to derail the current Buy cycle and send us back to the sidelines.

For right now, we’re still in it, and our Trend Tracking Indexes (TTIs) are situated relative to their trend lines as follows:

Domestic TTI: +1.10%
International TTI: -2.77%

We continue to stay committed to our current positions subject to our sell stops.