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

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

Across the board positive earnings pushed the major indexes to the top of their trading ranges despite warnings by the Fed that a recovery might take longer than expected.

Our Trend Tracking Index (TTI) for domestic funds/ETFs held above its trend line (red) by +2.62% (last week +1.28%) and remains in bullish mode.

The international index has now broken ABOVE its long-term trend line by +1.16% (last week -0.93%). A new Buy Signal was triggered today with the effective date being 7/26/10. Be sure to use my recommended 7% trailing sell stop discipline should you decide to participate in this new uptrend.

For the most part of the day, the markets were entrenched in a sideways pattern yesterday, when suddenly the indexes dropped like a rock as if pushed off a cliff.

The culprit was none other than Fed chairman Bernanke who testified before congress about the state of the economy. His words were anything but assuring for Wall Street as he used phrases like the outlook is “unusually uncertain” and “in all likelihood, a significant amount of time will be required to restore the nearly 8 1/2 million jobs that were lost over 2008 and 2009.”

Not exactly confidence building for a market that has rallied way ahead of any economic reality. At the same time, he mentioned that the Fed will act if the economy needs more boosting. I guess, since it worked so well last time, we need to do more of it. Go figure…

Bulls and bears are just chasing each other’s tails without clear direction. This is a market environment where you can lose money quickly on the short side and on the long side.

It’s best to stay away from equities for the time being (unless you are hedged) and remain in bond funds/ETFs. As the economy weakens further, bonds will be the beneficiary. The trend is up and, until it reverses, I see no reason to change.

The markets still had a hangover yesterday from Monday’s disappointing results by IBM and TI. Nevertheless, a rebound materialized reminding me of the old adage “one man’s trash is another man’s treasure,” as buyers saw opportunities where others saw disaster.

Domestically, the only negative news came from the housing sector with housing starts falling again while building permits were up.

This rebound may be supported further today as Apple surpassed analysts’ estimates after the close yesterday. The number to watch in terms of new upward momentum being generated is the 200-day moving average of the S&P; 500, which currently is around the 1,111 level.

Until that is broken, we remain in neutral territory, moving in a large sideways pattern, and aware of the possibility that a break-out to either side can occur at anytime.

After Friday’s drubbing, yesterday proved to be a time of testing to see if more follow through selling would take the major indexes to lower levels. So far it did not happen as the markets moderately bounced off Friday’s lows but faded towards the end of the session.

Watching the futures, it would appear that Tuesday’s opening will be to the down side as investors were disappointed with the quarterly results from heavyweights IBM and TI.

Other domestic news items were pretty much a non-event in that they cancelled each other out. However, Europe’s sovereign debt concerns slipped back onto the front burner as Moody’s cut Ireland’s bond ratings by one notch.

Overall, not much was driving the market in either direction; our domestic Trend Tracking Index (TTI) moved slightly higher and has now reached a point, which is located +1.41% above its long-term trend line. There are no changes to our invested positions.

MarketWatch featured “Buy and hold gets old,” as the aimless meandering of the markets is maddening for many investors along with the ever present memories of the 2008 crash:

Yet while both Stadion and Kenjol’s strategies sidestepped the worst of 2008, they also missed much of the recovery the following year.

Kenjol’s Sector Rotation was up 24.3% in 2009 compared to a 26.5% gain for the S&P; 500, while the Stadion fund gained only 2.7%. Kenjol didn’t provide returns for this year so far, but Stadion’s fund was up 2.5% as of July 15, three percentage points better than the S&P; 500.

Copelin said the securities he owns have a stop-loss order that will automatically sell if they fall by 10%.

[Emphasis added]

I just want to hone in on the highlighted sentence above since that always seems to be the #1 argument by the buy and hold folks against ever moving to cash on the sidelines.

Let’s look at the chart of the S&P; 500:

The upper red arrow represents the point in time of my last sell signal on 6/23/08. The low was made in March 09 (bottom of right arrow) and a rebound rally pulled the S&P; 500 out of the basement. By all measures, the market recovery was substantial.

However, it was not (yet) substantial enough to make up the losses that were caused by the 2008 crash. In fact, as of last Friday, the S&P; still needs to gain another 23.77% just to get to the level of our sell point in 2008.

This makes the argument “if you sell, you will miss most of the subsequent recovery” look downright silly, which it is. It supports my long-held contrary view that if you don’t participate in a major bear market to begin with, you don’t need to worry about missing a rally; you will still be ahead while everyone else scrambles to make up losses.

Since markets go down a lot faster than they go up, making up losses will not only take years of quality investing, but will also need some cooperation by the overall trend remaining positive.

Given the weakening economy and stimulus induced recovery of the past, which seems to be now dying a slow death, it becomes clear that further upside potential maybe be limited thereby further extending the time needed to get to a breakeven point.

While the article points out that ‘buy and hold gets old,’ to me, it’s been dead for a long time.

Most successful businesses, that have been around for awhile, are quite adept of analyzing their operations with the goal of avoiding money losing mistakes.

Think of the company you work for or that you are the owner of. Has it happened in the past that a grave error has cost some serious money or, in the worst case, even a human life?

If so, I am certain that the event was analyzed, new processes were set up and/or procedures put in place to avoid a reoccurrence. It’s sensible, because doing nothing would bring into play Einstein’s definition of insanity: “Doing the same thing over and over again and expecting a different result each time.”

But that is exactly what the majority of investors are doing. Investing is a business as well where money is at stake, whether you make your own decisions or have someone do it for you. Yet investors don’t treat it as such, otherwise, they would not be making the same errors over and over again.

You know where I am going with this. If you participated in your first bear market in 2001, and lost your shirt, from a business point of view, you should have made adjustments subsequently to avoid a repeat disaster from happening.

While that would have been sensible, it is not what most investors did, isn’t it? Memories are short; no different investment methods are employed, and a few years later (2008), the same thing happened again. It’s insanity at its finest.

Of course, when all you ever hear is buy and hold, diversification, non-correlation of asset classes and other terms, it’s no wonder confusion reigns. On the other hand, thanks to the internet, it has never been easier than nowadays to research and find other investment approaches that attempt bear market avoidance.

A few days ago, I spoke with a new potential client who has portions of his (substantial) portfolio managed by 3 different advisors—all following slightly different approaches to trend tracking and all avoided the brunt of the bear market of 2008. To be clear, this does not mean, he will never experience losses, it merely means that procedures and processes are in place to avoid the big market drops.

He is looking to add another advisor advocating trend tracking to his stable—how is that for the ultimate in diversification and portfolio safety?