For about the past year, I have been working on finding a way to improve my trend tracking methodology by researching ways to enter the markets earlier than as per the usual trading rules. At the same time, however, I wanted to be in control of downside risk.

As a result of my research, I am pleased to announce the details in “The SimpleHedge Strategy,” which can be downloaded for free. This e-book was almost completed last June when the markets collapsed, which prompted me to delay the publication. It was too good of an opportunity to apply these adverse market conditions to the SimpleHedge to see if it could withstand the rigors of the market place.

To me, the answer is a resounding “yes,” but you’ll be the judge to see how not only this simple approach can stand on its own but also complements my trend tracking strategy, which I have advocated for over 20 years.

Certainly, this e-book will generate a lot of questions and comments. Feel free to either post them or send me an email. I may not be able to respond directly to all inquiries but will attempt to post the relevant questions along with my answers.

This is a work in progress, and I expect to make updates and revisions as new opportunities present themselves over time.

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

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

The bears continued winning the tug of war against the bulls by a wide margin and the S&P; 500 sank below its previous November low.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -12.28% thereby confirming the current bear market trend.



The international index now remains -20.89% below its own trend line, keeping us on the sidelines.

Be sure to tune into tomorrow’s blog post, when I will be introducing a major addition to my Trend Tracking methodology along with a free e-booklet, which I have just completed.

I think reckless bottom fishing should be declared an extreme sport. Many investors, who jumped in too early, based on who knows what reasons, are seeing their portfolio values heading further south—again.

MarketWatch reports “Mutual fund flows back in the black.” Take a look at some highlights:

The mutual fund industry has had little to cheer about, but January’s flow numbers offer a bright spot. Investors put cash to work in all fund types — stock, bond and money-market — reflecting the first positive month for the industry since May.

In December, money-market funds saw net inflows of $127.4 billion, but bond and stock funds both suffered net outflows of $6.7 billion and $27.3 billion.

If I focus on the December data (stock funds), it shows that investors on balance got out of them even as the market was heading north again after the beating it took in November.

In January, everybody was back watching the CNBC cheerleaders and $11.7 billion flowed back into stock funds representing the bottom fishing efforts of the masses. With the continued sharp sell offs in February, more losses have been accumulated in only a few weeks.

Buy-and-hold and bottom fishing investors are being eaten alive as this bear market deepens. To be clear, I absolutely get no pleasure out of seeing so many investors doing the wrong things.

On one hand, I am delighted that trend tracking has helped thousands of people get out of the market in a timely manner; on the other hand, I am saddened that I was not able to spread the word more and help those tens of millions of people who sat on the deckchairs of the Titanic and watched without a clue as to what was about to happen.

Again, I am asking you, if you like my blog and weekly newsletter, to spread the word to as many people as you can; those investor who are helped because of your efforts will be forever thankful.

It’s common knowledge that a lot of hedge funds got clobbered last year along with the overall market.

Kiplinger took a look at some mutual funds that employed hedging techniques to see how they fared in last year’s environment. Here are some snippets from “Hedges That Didn’t Get Hosed:”

None of the funds, which promise to limit losses during severe bear markets, made money, but most did better than Standard & Poor’s 500-stock index, which surrendered 37%.

We like the Hussman fund because of its relatively low cost and its fairly long and impressive track record (from the fund’s July 2000 inception through January 9, it returned an annualized 8.9%, beating the S&P; 500 by 13 percentage points per year). Of the six top performers, Hussman is the closest to a traditional mutual fund. Manager John Hussman invests his long-only portfolio in growth stocks. But when conditions appear dire, he tries to cut risk with options and futures.
…
Because of their hedging strategies, all of these funds are likely to lag the stock market when the bull returns. Keep in mind, though, that they are not necessarily trying to beat the market. Most are simply trying to produce steady, positive returns that don’t swing too wildly. Those that do so successfully have the added advantage of producing returns that don’t move in lock step with the broad market.

It’s nice to hear that there actually were a few astute fund managers out in the market place who did not go down with the masses. If you are a buy and hold investor, you should not make the switch to one of these long/short funds, since their upside potential is limited due to the nature of hedging.

Regroup, by getting rid of your worst losers, and set a limit as to much more pain you are willing to endure on the downside. Then follow the direction of the major trends, whenever they become apparent, as I advocate in my weekly newsletter.

Above all, resist the temptation of bottom fishing. All of those who engaged in that extreme sport back in December have now further compounded their losses. You need to have patience to do the right thing. Overeager commitment to equities, caused by the desperate attempt to make up for past losses, will inevitably make the situation worse.

Once a trend is established, either up or down, it usually follows the basic law of physics that a body in motion tends to stay in motion. That was certainly the case over the past week as downward momentum accelerated and the November 08 lows were taken out with yesterday’s drubbing.

The widely watched 752 level on the S&P; 500 was violated, which means we’re back to square one in terms of looking for a new potential bottom formation. Those who engaged in the hazardous sport of bottom fishing late last year will now have to scramble for the exits to avoid further losses.

Many readers, who suggested last December that I modify the domestic trend tracking rules to allow for a faster re-entry, are hopefully getting the picture that being overeager does not always pay off—at least not in this economic environment.

Personally, I am excited about these new lows as they will bring us closer to the eventual real bottom wherever that may me. Additionally, it allows more time for our trend line to descend even further, which will present us with the opportunity to deploy our assets again at much lower prices.

The flip side is that those buy and holders still hanging on for dear life will be hurt even more as the bear market deepens and inflicts further portfolio pain. With the S&P; 500 having lost 38% in 2008, and almost 18% year-to-date, the picture for those having stayed in fully invested positions is now showing that they have reached danger territory.