Many bulls had to be disappointed with the lack of follow through buying on Monday after Friday’s mini rebound.

The upside attempt was there, as the chart shows, but in the end we closed near the day’s lows; not a good sign.

As I am writing this late Monday night (actually Wednesday morning here in Germany), the futures are pointing to a sharply lower opening with the SP 500 being down some 1.5%. This can change of course, but for right now it appears more downside pressure is lurking.

The European crisis remains with us, but saber rattling in Korea may add to more uncertainty in the market place with other hot spots waiting in the wings. Economically speaking, there are still tremendous real estate bubbles in the making in Canada, Australia and China, any of which can burst at anytime contributing to more market negativity.

Our domestic Trend Tracking Index (TTI) slipped with the sell off yesterday and only remains +0.81% above its long-term trend line. It will not take much downside momentum to move this indicator into bearish territory as well.

No matter what the market will do next, I am far more comfortable with the fact that we have greatly reduced our exposure (due to our sell stops) with only a few sector funds left in our portfolios.

With the markets having fallen sharply off their highs, our domestic TTI (Trend Tracking Index) is still hanging on to bullish territory, but only by a thin thread.

Another meaningful down day/week and this indicator will most likely join the international TTI in bearish territory.

Several readers have emailed over the past week or so with a similar theme in regards to a possible re-entry point after having been stopped out. Apparently, more clarification is needed. This reader’s comment was typical:

Thanks to your Saturday blog; I finally understand your rule about taking out a former high before re-buying a fund.

Vanguard Capital Value still has not reached the 11.14 where I was stopped out in June 2007, but the TTI took out all of our highs in 2007 and again in 2008–in effect letting us whip-saw the market before it whip-sawed us and letting me buy back.

In terms of looking for new re-entry points, it is absolutely immaterial what the high prices were in 2007/08. What matters is what the high has been for your mutual fund/ETF during this buy cycle since you purchased it.

Here’s a simple example. The current domestic buy cycle started on 6/3/09. Say, a few days thereafter you purchased Fund A at a price of $10. The subsequent ongoing market rebound pushed this fund to a high price of $12.00 before the pullback stopped you out at around 11.16, which represents a 7% drop off the high.

$12.00 is the high price I am referring to when looking for a re-entry point, not some high price from a few years ago. In other words, a conservative way to re-enter would be once the old high of $12 has been taken out again, should the market resume its upward trend.

If you’re aggressive, you may not want to wait that long, but pick a lower re-entry point. Personally, however, I want to make sure that any rebound effort is not just a head fake but a real resumption of the old up trend.

Right now, with the extreme moves in the markets we’ve seen, I think it’s safer to be a little late than make a decision too early and get whip-sawed again.

As announced, I’m on my way to Germany, so there will be no article today. I will resume regular posting on Monday, although it may be at odd hours due to the time difference.

The market zigzag of the past few weeks has made it abundantly clear again that whatever happens in Europe, or anywhere else in the world for that matter, does affect U.S. markets. The WSJ had more thoughts on the topic of decoupling in “No Sign of That Decoupling in Markets:”

Earlier this week, there was a dubious meme being purveyed on the Internet and by some TV talking heads that the U.S. was somehow “decoupled” from the problems in Europe.

And that time machine journey to the olden times of 2008 would be a reminder that if financial markets stay troubled long enough, the global macro-economy is sure to follow. We’re all in this, tightly coupled, together.

Sure, some markets will lead on the way up and on the way down, but in the end there is no one country, or stock market, that can escape the effects of any global economic slowdown.

However, there will always be sectors that are having their own bullish cycle, which is what I will be looking for should the domestic Trend Tracking Index (TTI) follow the international one back into bear market territory.

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

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

During one of the more volatile weeks on Wall Street, the major indexes lost 4-5% with major support levels now having been broken.

Our Trend Tracking Index (TTI) for domestic funds/ETFs remains above its trend line (red) to the upside by +1.29% (last week +2.57%) keeping the current buy signal intact. The effective date was June 3, 2009.



The international index broke below its long-term trend line by -4.72% (last week -1.25%). A Sell Signal was triggered effective May 7, 2010. We are no longer holding any positions in that arena.

Yesterday, the markets deteriorated sharply at first with the S&P; 500 finally finding support at its 200-day moving average of 1,101, which turned out to be the low of the day. The support level held for the time being, and we bounced off and ended up closing only 0.51% lower.

It could have been far worse, as major selling would have set in had this level been violated. As it stands right now, this bounce gave us a little breathing room, but there is a good chance that this level will be tested again.

The culprit for the continued selling spree came in form of an announcement from Germany last night as they set in place specific rules to ban naked short selling of stocks of key banks and European Government bonds.

As we’ve seen in 2008, when similar bans were introduced here in the U.S., the downward trend was stopped temporarily, but eventually momentum continued fast and furious to the downside causing heavy losses. We’ll have to wait and see if things will play out the same in euro-land.

With yesterday’s action, our domestic Trend Tracking Index (TTI) moved a little closer to its long-term trend line, but still remains 2.12% above it, which means that technically we’re still in bullish territory.

I would consider the current period neutral and a time of transition. In other words, directional momentum has changed and most of our sell stops, with the exception of some sector funds, have been triggered. This is not the time to be a hero and add new positions hoping for a rebound, since downside risk is simply too great.

Should the 200-day moving average on the S&P; 500 (~1,100) not hold, there is no way of knowing how far south this market can go. As long as the situation in Europe does not show any signs of improvement, or at least better unity in combined efforts, we have to live with the current volatility and the distinct possibility that this bull may turn into a bear.