Reader Ralph had the following question regarding a topic, which I have discussed some time ago, but which is worth repeating:

I am becoming familiar with your website, blog, etc. After looking closer, I am aware that your actual buying/selling is based on such things as “sell stops”, buying back into a market after certain criteria are met, etc.

However, your TTI graph identifies very specific BUY and SELL times. If I, in fact, follow only the specific BUY/SELL indicators, how much different can I expect my returns to be when compared to your actual buying/selling method (following sell stops, meeting buy in criteria, etc.)?

When a buy signal is generated via the domestic TTI (Trend Tracking Index) crossing its long-term trend line to the upside, we use that fact as a buy signal the moment a clear piercing has occurred.

On the sell side, as you mentioned, we follow the 7% trailing sell stop discipline. The use of the sell stop discipline was implemented out of the necessity to better deal with the boom/bust cycles of the economy (and its effect on the markets) that we have seen over the past decade.

If you were to wait with selling your positions until the crossing of the trend line occurs again after a bullish period, you would be giving up too much in unrealized gains and, depending on the duration of the previous rally, could turn a profitable position into a losing one.

Using a trailing sell stop as a means to step aside will lock in profits, if you have them, or limit your losses if the markets head further south. The downside is that from time to time we have to face a whip-saw signal, which means the markets stop us out, reverse course and a new rally resumes.

While that is certainly an inconvenience, it will, however, prevent us from participating in disastrous bear markets such as 2001 and 2008. That sure beats the disadvantages of a whip saw.

If you are the aggressive type, you can stay invested in the markets and use the crossing of the trend lines to the downside as your last safety net to exit and step aside. Just be aware of the shortcomings mentioned above.

As an entry point, the TTIs work well; as an exit point, my preference is to use trailing sell stops to better gain control of the ups and downs within a portfolio.

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

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

A very negative consumer sentiment index today pulled the major indexes off their lofty levels.

Our Trend Tracking Index (TTI) for domestic funds/ETFs held above its trend line (red) by +1.28% (last week +1.34%) and remains in bullish mode.

The international index has now broken below its long-term trend line by -0.93% (last week -0.87%). A Sell Signal was triggered effective May 7, 2010. We are no longer holding any positions in 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.

It wasn’t a straight road, but the Dow managed to stagger to its 7th higher close in a row yesterday, although only by the slightest of margins.

Wall Street seemed to be enamored by and only focused on Intel’s bullishness by totally disregarding other economic news, which indicated anything but a continued recovery in the second half of the year.

First, retail sales for June fell 0.5% igniting concerns that an economic slowdown is a real possibility. Second, this fact was supported by the normally upbeat Federal Reserve cheerleaders, issuing a reduced second half growth forecast. Maybe some reality has set in as the Fed minced no words by stating that it might take as many as six years for the economy to recover fully from the recession:

The long recovery would be the result of “firms’ caution in hiring and spending in light of the considerable uncertainty regarding the economic outlook, by households’ focus on repairing balance sheets weakened by equity and house price declines, and by tight credit conditions for small businesses and households.”

This is about as negative of a Fed statement as I have ever seen. Nevertheless, traders on Wall Street seemed to simply ignore the downbeat Fed announcement and pushed the major indexes off their lows.

The S&P; 500’s early assault on the 1,100 level failed again, but a late day rebound cut losses and moved us back to the unchanged line for the day. Again, the number to watch is around 1,111, which represents the S&P;’s 200-day moving average. Once that point is clearly pierced, more buying and higher volume is likely to materialize.

I found it astounding that the markets ignored the usually closely watched Fed remarks. We have to wait and see if other positive earnings reports can jump start a new bull run in the face of a weakening economy. If so, it may very well be a short-lived one.

Alcoa started the earnings season on Monday and Wall Street seemed to like the better-than-expected report as the rally continued on Tuesday.

After yesterday’s close, Intel’s report card not only exceeded expectations, but 3rd quarter guidance was positive and could provide more upside momentum today.

The S&P; 500 raced towards the 1,100 level, but sold off in the end before reaching it. We may very well see another attempt today, but with major indexes now having completed a six-day winning streak, some pull back is in order.

Mish at Global Economic Trends featured an interesting story and graph showing how the stocks in the S&P; 500 have been tracking the index to the highest degree. Last time these extreme conditions occurred was in October 1987, just prior to the crash.

Sharp rallies on relatively low volume (with indexes below their long-term trend lines) just don’t give me the warm fuzzies.

The markets meandered most of Monday in anticipation of the start of the earnings season. The major indexes gained a tad as the chart (courtesy of marketwatch.com) shows:

Alcoa reported slightly better than expected earnings after the close, which may give the market a boost on Tuesday.

In the bigger scheme of things, all three major indexes remain below their 200-day moving averages, which means we’re still in neutral territory. I like to see the S&P; 500 break above it, which would indicate a resurgence of bullishness. That would make me remove the short side of our current small hedge so that we can become outright long with a portion of our portfolios.

In the meantime, it’s a waiting game to see if there is enough starch in this earnings season to keep last year’s bull alive.

In Saturday’s post “Is it time to take cover?” I featured Bob Prechter’s market view along with his extremely gloomy forecast.

If you are in need of a more upbeat outlook, here’s what Warren Buffett had to say on the topic:

In the interview, Buffett says “we’re on the right course” and encourages President Obama to speak with “enormous confidence” about the country’s economic future. He says that the stimulus is working and that the economy will improve in the next two or three years.

“We’re hiring,” he adds, referring to many of his Berkshire Hathaway companies.

You can see a video of his interview here.

While I respect Mr. Buffett, I sure can’t share his extremely optimistic view of the current state of the economy. I see us heading in the opposite direction, although most likely not with as extreme of an outcome as Bob Prechter forecasted.

Only time will tell which one of these gentlemen will be right.