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.”

The short answer is no. I am not an economist, but I have always believed that having little or no debt as an individual (or as a country for that matter) is certainly more desirable than drowning in payments. While there is a period in everyone’s life where debt is necessary, the ultimate goal for most investors is to eventually become debt free.

Apparently not everyone agrees. Much to my surprise I found Ken Fisher, CEO of Fisher Investments, heavily promoting the use of debt as a good thing in his article titled “Learning to love debt.”

While it makes for interesting reading, there isn’t much I can agree with, especially since he makes no distinction between debt for investment (growth of business) and consumer debt (reckless spending). Some of his comments about the economic benefits when a heroin addict borrows money might even make your hair stand up.

I far more enjoyed the article analysis/rebuttal by Michael Shedlock, who writes on global economic trends. His points are succinct and well thought out. He even went through the trouble of calling Fisher Investments to find out how Ken uses debt and leverage himself. Turns out he doesn’t use it at all!

Huh?

Apparently, Ken doesn’t eat what he cooks. There goes the credibility. Oh well…

Most of the time, any attempt of investing in the market other than via Buy & Hold (Asset Allocation) is immediately labeled with the by now dirty word “timing.” MSN had an article about that called “Does market timing ever work?”

The story starts with the fact that “rapid, short-term trading drives up costs” for other mutual fund investors. If that’s what timing is, I can agree with that. It goes on to state that that most investors lose money and buy closer to the top than at the bottom. I’ve heard that too.

From the experience in my advisor practice, I have found that most investors’ problem is not the rapid in and out trading as this article describes. Far from it. When I look at portfolios from prospective clients, I am amazed (more often than not) of how well they have selected their mutual funds and ETFs.

However, I’ve always found the same problem.

While the investor may have made great fund selections, he never sold and held them through bull and bear markets alike. The end result was that his returns were mediocre at best. If that has happened to you, trend tracking can help you alleviate that problem.

How?

By having a definite plan in place the moment you purchase your investments. If you do nothing else but employ a trailing stop loss method, you will avoid giving back most of your unrealized gains in the event of a trend reversal or worse, a slide into bear market territory. Yesterday’s post on EUROX clearly demonstrates that a fund, which had provided superior profit opportunities over a 2-year period, turned in a far lesser performance that it could have.

Trend Tracking as opposed to market timing attempts to be a conservative long-term approach with its main goal being the avoidance of a bear market. It has nothing to do with rapid trading but everything with using some common sense to better deal with the irrationalities of the market place.