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

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

Friday’s sharp advance based on lower oil prices and soothing words from the Fed chairman was not enough to keep the major indexes in positive territory.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains below its trend line (red) by -0.64% thereby confirming the current bear market trend.



The international index now remains -7.93% 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.

Based on recent emails, I know that many readers are scouring the investment globe for high yielding mutual funds/ETFs hoping to find a way to generate income or an above average rate of return.

One of the highest yielding funds I have found is ADVDX, which sports a mouth watering annual yield of 18.11%, according to Yahoo.com. Let’s take a look at a 2-year chart:




All of a sudden this fund does not look so good, doesn’t it? Yahoo reports that during first 7 months of 2008, ADVDX has lost 18.61%. And that is the problem with income investing in general when the markets are engaged in a down trend, which is exactly what happened lat year. While income investors were able to generate a nice yield, they ended up losing twice that amount on the principal side. It’s simply robbing Peter to pay Paul, or worse.

While I have invested in ADVDX in the past, I have only done so during a clearly defined bull market and not when the bear was licking his chops. Investing for income in this environment requires the same rules of following trends i.e. be in when the trend is up and out when the trend reverses.

Otherwise, you may find yourself with a nice income on one side but with an overall deteriorating financial position on the other.

Many investors were extremely excited when the Russian ETF (RSX) debuted in May 2007. While it’s been a bumpy ride, the bias at first was definitely to the upside as the 1-year chart shows:




From the top, which was made on May 19, 2008, it’s been all downhill, and YTD this ETF is down some 23%. Russia’s recent “excursion” into Georgia has not given the world community a warm and fuzzy feeling, which contributed to the recent acceleration to the downside.

Since breaking the long-term trend line to the downside, RSX has lost 21%. As always, this serves as a reminder of the importance of watching where the trend is headed to avoid either giving back all of your profits or limiting your losses.

Yesterday’s market activity, as represented by the chart above (thanks to MarketWatch), reminded me of my skiing days when I was trying to avoid black diamond slopes whenever possible. While I have since given up skiing, I still try to stay away from these kinds of slopes in the financial markets.

There was nothing positive about the drop other than that it occurred on low volume, which is customary during the dog days of August.

Despite lower crude oil prices, the culprits were resurfacing and justified concerns about the validity and survival of Fannie Mae and Freddie Mac. While the jury is still out, to me it’s beginning to smell like another taxpayer bailout. Of course, calling it nationalization sounds so much better.

The sharp drop of all the major indicators pulled our Trend Tracking Indexes (TTIs) down as well, which leaves us positioned as follows:

Domestic TTI: -1.00%
International TTI: -8.30%

We’ll remain in cash on the sidelines until a trend reversal to the upside occurs.

MarketWatch had an interesting write-up in “Stupid investment of the week,” which featured the latest and greatest new thing called 130/30 funds. Sure, with ETFs steeling a lot of the mutual fund business, it was time for a new invention no matter whether it made sense or not.

In case you never heard of 130/30 funds, here’s the definition:

The 130/30 moniker reflects what these funds do. Typically, a 130/30 fund invests 130% of its assets in “long positions” — stocks on which the manager is betting that the price is going up — and 30% in short positions, where the expectation is that the price will go down.

It’s a different twist on long-short funds and market-neutral funds, both of which brought certain qualities of hedge funds — notably a purported ability to make money in all market conditions — to ordinary mutual funds. Alas, the vast majority of those fund types have failed to deliver on their potential; most market-neutral funds have been unable to make decent money in all market conditions.

The article goes on to refer to two funds namely MAMSX and RUSAX, which have been on the market for less than a year. A picture is worth a thousand words, so let’s take a look at the chart:




The obvious goal of 130/30 funds, or long/short funds for that matter, is to make money no matter which way the markets trend. Both funds have failed miserably so far and pretty much followed the S&P; 500 into bear market territory.

While the intent of designing a strategy that works in bull and bear environments is a noble one, 130/30 funds seemed to have missed that mark by a mile.

MarketWatch featured an article titled “Is the whole world slowing?” Here are some highlights:

Europe’s economy contracted in the second quarter, burdened by higher prices and weak export markets, the statistical agencies reported Thursday.

So much for the theory that the global economy has “decoupled” from the United States. It’s still true that when America catches a cold, the rest of the world sneezes.

[Emphasis added]

My viewpoint is exactly the same, and I have many times commented that we are living in such an intertwined global environment that there is no place to hide. What I mean by that is that no country is exempt from a major economic downturn. While some countries or regions may be affected on a delayed basis, ultimately everyone will end up sneezing as well.

It appears that my international Trend Tracking Index (TTI) has been the leading indicator for the past 9 months, when it signaled a “Sell” on 11/13/07. Its composite consists of widely diversified international funds, which are a good representation of the world as a whole. While some countries have temporarily been able to buck the downtrend, everyone has now joined the crowd with most momentum numbers for country ETFs now having moved solidly into the red.

Based on the International TTI being in bear market territory by -7.08%, and the domestic TTI having recovered to -0.56%, it would appear that the U.S. market is poised to take the lead if and when the current bear scenario reverses itself.