Jeff Hirsch of Stock Trader’s Almanac had a commentary in MarketWatch titled “Bear killer meets Presidential bull.”

It highlights the historical ups and downs that October is known for. While many rallies have started during this month, some of the greatest crashes such as in 1929, 1987, back-to-back massacres in 1978 and 1979 and on Friday the 13th back in 1989 occurred in October as well.

He has these interesting thoughts to offer:

October used to be a horrible month for stocks and from 1950-1997 held the record for most cumulative Dow Jones Industrials points lost. Since the beating the street took in 1997, it has since been the best month. All three major indexes have been up significantly with an average monthly gain of 3.1% for the Dow, 3.6% on the Standard & Poor’s 500 Index and a massive 5.1% for the Nasdaq Composite, which is why we advise that October is an especially good time to buy depressed high-tech stocks. The rising tide has indeed lifted all boats as only December and November are better for small-cap Russell 2000 stocks.

Although often brutish, it has become a turnaround month — a “bear killer” if you will. Eleven post-WWII bear markets have ended in October: 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001 and 2002. Seven were midterm bottoms.

He recommends a list of ETFs that have seasonally done well during this upcoming quarter. Don’t take that as a sure thing. I checked my data base, and some of the recommendations are showing decent momentum numbers while others are still very weak.

As always, if you decide to enter any new position, you need to establish your exit strategy at the same time. If you don’t, you are not investing, you are merely gambling.

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

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

Positive employment figures provided the fuel to close out this week on a positive note.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has moved to +6.39% above its long-term trend line (red) as the chart below shows:



The international index moved sharply higher to +5.32% above its own trend line, keeping us safely on the buy side.



For more details, and the latest market commentary, as well as the updated No load Fund/ETF StatSheet, please see the above link.

Whenever markets pull back, as they did yesterday, I look at my data base to see which no load funds/ETFs go against the grain by staying even or actually going up.

In the name of diversification, I always like to own positions that are following an uptrend strongly, yet have the ability to resist sell offs. Sure, it’s what every investor is looking for. It worked for us yesterday, as most of the super stars of the recent past gave back some gains, but our position in XBI (Healthcare) actually gained a strong 1.73%.

I have noticed a reoccurrence of this over past few months, as the S&P; 500 pulled back, XBI advanced. Take a look at the chart:

Just about after the August sell off, a “disconnect” between the S&P; 500 and XBI occurred, which was just about the time we entered this position. While no one knows if this will continue, it has worked well for my clients’ holdings over the past couple of months.

This is not a recommendation for you to follow suit and jump in, but merely a suggestion for you to do your own research to see if this ETF makes sense to you.

With Monday’s great up move to start the final quarter of 2007, I have updated the ETF Master list with yesterday’s closing prices to give you more recent data to work with. You can download the file at:

http://www.successful-investment.com/SSTables/ETFMaster100207.pdf

Despite the modest pullback yesterday, the uptrend remains intact with our domestic Trend Tracking Index (TTI) now having advanced to +6.46% above its long-term trend line while the international TTI jumped to +5.10%.

Morningstar re-launched its Stewardship Grades for Mutual Funds a few days ago designed to reward the industry’s best stewardship practices. So far, it has shown Clipper funds (CFIMX) to be a standard bearer for corporate governance.

OK, I am all for improvements in this area, but I don’t select a fund just based on these new criteria. Take a look at CFIMX, which has net assets of over $3 billion. Year-to-date (as of 8/31/07) it has a negative return of -1.09% according to Yahoo Finance.

Hmm, let’s assume for a moment that the average investor has $50k invested in this fund. That means, with over $3 billion in assets, there are about 60,000 investors who are exposed to a fund with A1 corporate ethics, whose portfolios have gone down in value.

Comparing this fund with the S&P; 500, and one of our current holdings, WLGYX, and you can clearly see that this is, to say it politely, not a fund you want to own. Take a look at the chart:




To be clear, out of 117 Large Blend funds in my data base, this one ranks in the bottom 5. The top ones show a YTD return of around +19%.

My point is simply that it is noble to support causes you believe in. However, it is important to distinguish between being engaged in worthwhile endeavors and making decisions which may jeopardize your portfolio growth along with your future retirement.

Motley Fool featured an article titled “Beat the Eggheads at Goldman Sachs,” which shed some light on how the quantitative approach to investing works. It’s entertaining reading especially once you realize that top pros in the business were getting slaughtered in August.

Yes, August was a difficult month with the markets pulling back, but the main reason things went so bad for the quant folks is the use of extreme leverage to enhance returns/losses. Sure, you may have used enhanced ETFs (up to 200%) yourself, but I am willing to bet that you only had a portion of your portfolio exposed and that you watched your position very carefully by having an exit point in place.

As the article states, some of the “quants” used 6 times leverage on 100% of the portfolio, apparently with no stop losses, so even small market fluctuations had a huge impact on gains and losses alike. If you want to find out how not to invest, this article is for you.