You very likely have insurance for your most prized possessions such as life, health, car, property and a host of others. While you may not like paying the ever increasing premiums, you realize that you couldn’t do without it nor would you take that chance.

I was reminded of that, when I reviewed a portfolio with a client, a physician who is busy running his medical practice and not all that interested in day to day investment details. As we went over the sell stop discipline along with the trend tracking method, he said: “All we’re really doing is insuring ourselves against catastrophic loss in our portfolios.”

He is right, although I never thought of it in those terms. In essence, when you have a methodical plan to get in and out of your investments, you simply try to insure yourself against too much risk to the downside. Those who did not do that, paid dearly during the last bear market.

We pay our premium from time to time in form of a whip-saw signal that may get us out of the market unscathed and soon thereafter back in as the downside risk has been reduced. Such was the case back in August (8/16/07) when a Sell signal moved us out of our international positions. Three weeks later (9/5/07), the trend reversed, and we moved back in.

These types of whip-saw signals can provide us with an opportunity to re-evaluate the various available fund/ETF choices and make adjustments by moving to a better performer. That was definitely the case in September when our then primary fund choice (WASYX) provided us with a superior return.

Whip-saws are a part of investing when following trends. If you look at them as insurance against portfolio disaster to the downside, you may be able to better accept them as a necessary evil.

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

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

Despite Thursday’s sharp drop in the markets, the major indexes managed to keep the weekly losses manageable.

Our Trend Tracking Index (TTI) for domestic funds/ETFs has moved to +6.35% above its long-term trend line (red) as the chart below shows:

The international index slipped but still remains +3.29% above its own trend line, keeping us 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.

Despite its ups and downs, October turned out to be a good month for those invested in the right sectors. The top 10, as well as the worst 5 crowding the bottom of the totem pole, from the 500 ETFs I track, are listed below. Please note that the figures shown cover the past 4 week period:

Here are the top ten along with their gains and current M-Index ranking:

1. FXI (+22.65%, 57)
2. IFN (+21.92%, 35)
3. GXC (+21.80%, 31)
4. EEB (+20.90%%, 47)
5. USO (+19.76%, 31)
6. DBO (+17.98%, 18)
7. EWZ (+17.02%, 43)
8. PGJ (+16.49%, 48)
9. IIF (+15.83%, 26)
10. GDX (+15.65%, 25)

And here’s the bottom of the barrel:

1. RYF (-12.28%, -12)
2. UYG (-9.42%, -4)
3. SMH (-9.28%, -6)
4. IAT (-7.11%%, -9)
5. KRE (-7.07%, -8)

It’s obvious that there is a huge difference between these two extremes. If you have missed the upswing, then you should look into using trends to identify those ETFs with strong upward momentum along with our M-Index ranking. It goes along with one of the basic laws of physics: “A body in motion tends to stay in motion.”

While this is not a guarantee that an up trend will never end, it allows you to ride upward momentum as long as possible. When used in conjunction with a trailing stop loss strategy, you’ll never have to guess when to sell; simply let the market tell you when it’s time to get out.

Uncertainty ahead of the Fed meeting had the markets move sideways. Today’s announcement could be a trick or treat with many hoping for another interest rate cut of at least ¼ point.

Below please find the link to the most recent ETF Master list, which has been updated with yesterday’s closing prices. This will enable you to work with more recent data. You can download the file at:

http://www.successful-investment.com/SSTables/ETFMaster103007.pdf

Our Trend Tracking Indexes (TTIs) moved higher from last Friday’s close and remain in bullish territory with the domestic and international TTI having moved above their long term trend lines by +6.56% and +4.79% respectively.

Seeking Alpha had a short blurb on the interpretation of investor sentiment. The story cites a recent sentiment survey showing that the sharp drop on the 20th anniversary of the ’87 crash caused bearish sentiment to rise to its highest levels since May of this year.

Their 5-year chart supports the view that, after extreme high sentiment readings that, more often than not, the markets performed well—at least for some amount of time.

It’s a contrarian indicator that is interesting to note, but I would not hold my breath but rather rely on my sell stop discipline to get me out of the market should it turn out that the bears are right this time.

While there are not too many articles featured in MarketWatch that I can agree with, there was one recent feature titled “Knowing when to get out” that was very sensible. It addressed the fact, I have been hammering on for years, which is that your portfolio can benefit immensely from having a selling strategy.

While the story is not very explicit on what an investor can do to set up and implement a selling method, it nevertheless is a step in the right direction. I have to agree with the assessment that “selling is an art and buying is a trade.” To my way of thinking, ‘when’ you sell is far more important than ‘when’ and ‘what’ you buy. Why? Because when you sell at a profit, monopoly money turns into real money.