I have been elaborating on the need for methodical investing almost on a non-stop basis. Sometimes it seems that, when reading media stories, that I am the lone ranger. Many of my newsletter readers are aware of that and at times submit stories that support the fact that there are others who have similar viewpoints by trying to make sense out of Wall Street’s irrationalities.

Recently, reader Mike shared an article from “Money and Markets” titled “U.S. Stocks Skating on Thin Ice.” Author Tony Sagami makes a lot of sense, and not only because it goes along with my way of thinking, when he outlines 4 things you can do to protect yourself from more stock market weakness:

1. Adjust your asset allocation. This is a great time to look at what percentage of your portfolio is invested in stocks, bonds, cash, etc. If you’re heavily invested in stocks, you may want to consider reducing your equity exposure and raising cash.

2. Implement stop losses. These orders tell your broker to sell your shares if they fall to a predetermined price. Only you can decide what prices you’d like to sell at, but many investors choose an acceptable percentage amount (say, 10%) and apply that to each of their positions.

3. Use a strict sell discipline. Market technicians use tools like moving averages, relative strength indicators, and other momentum-oriented tools to tell them when to buy and sell. One of the simplest market-timing strategies is selling a stock or fund whenever it drops below its 50-day moving average. But whatever indicator(s) you use, the key is removing as much emotion as you can from the process.

4. Don’t get stuck in one country. The U.S. economy is rapidly slowing and even on the verge of falling into a recession. However, that is hardly the case in other parts of the world. It’s a lot better to invest in countries that are growing like mad than those that are crawling along like inchworms.

I agree with Tony’s assessment because as part of trend tracking we regularly follow all of those suggestions. The only caveat I have is regarding his point 4. As the U.S. markets slide, so will most countries but at an accelerated pace. But you already know that. If you followed our recommended sell stop discipline, you should not have much exposure to most foreign countries, especially those that have come off their highs by more than 10%.

Since I have been writing frequently about the Subprime debacle for most of this year, you might be getting tired of reading about it.

However, its incredible negative impact and consequences are here to stay for some time to come and will affect adversely not only the U.S. economy but many countries worldwide.

It’s interesting how the Subprime pig, as I called it, made its way around the world rattling countries when and where you least expected it. How did this crisis spread from being a bunch of Subprime loans, originated by greedy, irresponsible mortgage brokers, become such a powerful tool that brought down hedge funds and so far has caused losses in the neighborhood of $50 billion dollars—with no end in sight?

MarketWatch recently featured a story called “Toxic Export,” which explores how America’s risky Subprime mortgages fouled the world markets. It’s an interesting read and will enlighten you as to how, among other things, U.S. Subprime loans caused havoc for a British bank that never lent a penny across the Atlantic.

When I wrote last Sunday’s piece on the newly created term “Market Dislocations” and the possibility that we might be introduced to more BS terminology relating to the Subprime fallout, I did not realize how quickly new terminology might appear.

MarketWatch had a blurb titled “Bear CFO: some prime brokerage clients moved money to rivals,” in which he explained that “we did see some balance migration going to other prime brokers.”

Hmm, balance migration? I wonder who thinks up that terminology. If you haven’t read the article, you may be trying to figure out what he is talking about. While all businesses, at one time or another, “lose” clients, customers or patients, that would be too ordinary of a statement for a Wall Street firm. They don’t ‘lose’ customers, they simply experience ‘balance migration.’

The CFO went on to say that “what we really saw were clients trying to be more defensive and moving balances in many cases into the hands of the banks where they felt there was a stronger hand, if you will.”

Ouch; does someone actually get paid to write this garbage?

The company has lost billions of dollars of clients’ money and still can’t get off their high horse. Wouldn’t this be the time to eat some humble pie and use a different tone to re-connect with lost customers?

On the other hand, BS (not Bear Stearns) terminology permeates every part of American business in good times and bad. If you’re in sales and have recently lost some customers, you might consider going to your boss (or write an e-mail) and explain that there is nothing to worry about; you simply have experienced some balance migration to your competitor. See what he says; maybe that will qualify you to move up in the company food chain.

No matter which investment methodology you use, you are bound to be frustrated and disgusted from time to time. Recent market behavior seems to have brought these feelings to the front burner, as reader Chris writes:

I value your input and am grateful for the service you provide.

How do you distance yourself from what you do and not take it personally?

I am sure that Chris is not alone with this assessment, so here’s how I answered her:

“I have found that the only way to deal with the irrationalities of the market place is to detach myself emotionally by using a systematic approach to investing such as I advocate.

I don’t like the day-to-day changes any more than you do, but I keep my nose away from hyped up news stories and focus on the big picture as outlined. That helps me keep my emotions in check.”

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

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

High volatility marked this week as the major indexes managed to come out ahead.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has moved to +4.44% above its long-term trend line (red) as the chart below shows:




The international index slipped -0.63% below its own trend line, keeping us in a sell mode for that arena.

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

The Dow Theory, a market trend forecasting system developed in the late 19th century by WSJ editor Charles Dow, is close to signaling that the primary trend of the market, which has been up for five years, is down, or bearish, USA Today reported.

Chuck Carlson, contributing editor of Dow Theory Forecasts newsletter said that “the market is at a big inflection point.” According to Dow Theory, if the Dow industrial average (made up of companies that make goods) and the Dow transportation average (made up of companies that ship goods) both breach significant market levels, it confirms a trend change.

The transports are trading below their August low, when the credit scare first hit stocks. What is worrisome is that the industrials, after plunging 4.5% the past three sessions, are hovering less than 197 points, or 1.5%, above their August low. If the industrials close below their Aug. 16 low of 12,845.78, it would confirm that the market trend has turned bearish.

“Dow Theory looks at significant points on the downside and upside,” Carlson says. “If stocks breach those points, such as the dark period in August, it means something significant is going on. If both the industrials and transports are moving lower in tandem, it’s not good for the economy, profits or stocks.”

While I agree with this assessment, it also seems to go along with our Trend Tracking Indexes (TTIs) coming off their highs and subsequently triggering sell stops for a variety of our holdings. Again, just because a trend turns down, it does not mean that a return to bear market territory is imminent, although many fundamentals point in that direction.

As always, my preference is not to guess, but the let the actual numbers (and not the media) dictate my next move. If it turns out that this downturn was temporary’ and the main trend heads due north again, we will pick our entry points at that time. While this means that we will have to give up a little on the upside, we were well protected on the downside had it played out that way. That’s what let’s me sleep at night.