The explosion that rocked Wall Street last week was bond guru Bill Gross’s (PIMCO) admission that he has turned bearish and that worldwide stronger economic growth over the next few years will lead to higher interest rates.

Bond prices tanked, yields rose and real estate funds/ETFs headed south. Some media had a hard time comprehending why Mr. Gross changed his position after having been a long-term bond bull. Did he cave in?

Not in my view. PIMCO is in the investment business and fundamentals, even for those with a very long-term view, change from time to time. I like the quote from famous economist John Maynard Keynes best who said, when encountering criticism about his change in viewpoint, that “when the facts change, I change my mind—what do you do, sir?”

What are some of the effects of higher rates? A good analysis to read is Michael Shedlock’s story on “The Bond King’s Capitulation.”

Of course, the trend to higher rates will be a severe handicap for the Fed in potentially bailing out the most troublesome weak spots in the economy, namely SubPrime and Real Estate.

Whenever the market behaves in a tumultuous way to the downside, as it did last week, I like to look back to see if there were any mutual funds or ETFs that bucked the trend. I’m not talking about the obvious bear market funds, but others that may have held up well and may have been part of your portfolio.

This is only a short-term view of market activity and certainly not meant for you to rush out and buy those that survived the week on a positive note. But you may consider them and do further research to see if an investment in them is merited.

Higher interest rates were the culprit for last week’s 3-day slide, which means that interest rate sensitive funds/ETS fared the worst. This is confirmed in our momentum tables; here are the worst of the bunch out of my data base containing 1,504 funds/ETFs:

1. UTPIX, Utilities, -7.80%
2. PMPIX, Precious Metals, -7.05%
3. XLU, Utilities, -5.30
4. EWZ, Latin America, -5.28%
5. FSUTX, Utilities, -5.27%

The top five, which held up best, are:

1. CH, Country Fund, +3.04%
2. TIFQX, Technology, +2.75%
3. TF, Pacific Asia, +1.44
4. EWT, Pacific Asia, +1.22%
5. CNZLX, Pacific Asia, +1.17%

As a general comparison, the S&P; 500 lost -1.87% for the week while Gold dropped -3.38%. That means that even a traditional safe haven such as Gold failed to hold up again just like it failed during the meltdown of February 27.

While it is important to diversify your holdings, it is not a guarantee that your portfolio will withstand a severe market slide. The sell offs during May/June 06, at the end of February 07 and now last week, are proof that many markets work very much in tandem and to own a “zig” holding when the market “zags” is rare indeed.

That’s why I continue to believe that a clearly defined entry and exit discipline is the best way to deal with market uncertainties and keep your portfolio from freefalling.

A few weeks ago, on May 16, I posted about how sometimes technical analysis can help forecast market behavior. While it is not crucial for the use with my trend tracking methodology, I still like to look at patterns that have historically been repeating themselves on a consistent basis.

What I am referring to is the “break away” gap as shown in the domestic TTI chart below:



The theory is that break away gaps will sooner or later be closed. What that means is that prices tend to always come back down and “close” the gap—eventually. And that’s the rub. It’s not a reliable timing indicator as to when this will occur.

With the bloodletting of this week, I wanted to revisit the chart to see if this week’s price drop had any effect. As you can see, the pullback did not make it quite to the gap let alone close it. Today’s rebound took us (thankfully) back in the other direction.

However, the jury is still out to see if this phenomenon holds true again. Once the gap closes, we could see a solid rebound and a move back to higher territory. However, if prices move right through the gap on the downside, then odds are high that a trend reversal has occurred. Our sell stop points will approximately be triggered around the low point of the gap thereby protecting our portfolios should the slide worsen.

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

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

A 3-day selling spree left the major indexes in the dust for the week despite Friday’s sharp rebound.

Our Trend Tracking Index (TTI) for domestic funds/ETFs now sits +3.68% above its long-term trend line (red) as the chart below shows:



The international index has now moved to +8.20% 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.

This week’s (somewhat awaited) market slide took no prisoners like most sudden sharp pullbacks in the recent past.

At this point, effective with the closing prices yesterday, our holdings have come off their highs on average as follows:

Domestic Funds ETFs: -2.75%
International Funds/ETFs: -3%
Sector Funds/ETFs: -4%

The most hard hit sector was Utilities, and our holding there is closest to triggering our sell stop point (-10%) by having come off its high -8.94%.

I am holding all positons until our actual sell stops are triggered, based on closing prices, before taking any action.

With the constantly expanding offerings of ETFs, I have been planning on improving the weekly StatSheet. While this is a work in progress, you will see come changes already in this Friday’s issue and from hereon forward.

In its current format, the StatSheet contains some 30 pages of graphs and no load mutual fund/ETF data. One of the major planned changes is the presentation of the momentum tables. They will be expanded where appropriate and posted as a link to a downloadable PDF file.

This will allow you to better print out only that information which is of interest to you. Due to the reference to the tables as a link, the overall size of the StatSheet will be reduced, which will allow for faster loading when accessing.

As mentioned above, new ETFs are being added rapidly, and currently there are almost 450 being offered with more in the works. I believe that ETFs should be an important component of everybody’s portfolio, and I will set up tracking for all of them as time goes on. In this week’s StatSheet, you will notice how the ETF Master list already has grown to some 250 funds.

While ETFs originally started out covering the most well known indexes, they are now being sliced and diced and are representing many micro sectors. While not everyone of them may be a good investment choice, our momentum figures will weed out the weak ones and show those worthy of your attention.

More importantly, having all of these choices will put us in a position to improve selections by (hopefully) having some “zig” in our portfolios when the markets “zag.”