Trend Tracking Index (TTI) Slips Into Bear Market Territory

First, David Gaffen of the WSJ MarketBeat had this to say about today’s market activity:

Where to start? Today’s market conjures nothing more than the image of a man retching in an alleyway, and there really can’t be too many other ways to characterize the session when the strongest performer among major indexes falls by 2%.

The culprits are long but distinguished, including but not limited to market-related concerns (potential downgrades of bond insurers Ambac and MBIA), technical considerations (the Russell 2000 is now officially in a bear market, having lost nearly 21% of its value since it peaked in 2007) and the economic outlook (the Philadelphia Fed survey fell to a level consistent with a recession, and housing starts were terrible, again).

“We’ve reached what I call the vomit stage,” says Michael Metz, chief investment strategist at Oppenheimer & Co. Now, of course such a stage — when investors dump anything they can, as fast as they can — generally produces a swift turnaround reaction, even if it’s short-lived. But Mr. Metz cautions against assuming that’ll happen tomorrow, because options expire, which usually produces funky trading. Tuesday is another story, but he doesn’t extend his optimism long beyond that. “The fundamentals are not very promising,” he says.

That pretty much sums up not only today’s but this week’s (or this year’s) market activity. Our domestic Trend Tracking Index (TTI) barely broke below its long-term trend line by -0.10%, thereby following the lead of the international TTI, which went negative on 11/13/07 and now sits -9.79% below its own trend line.

If you’ve been following my weekly updates, as well as this blog, today’s all-out signal for domestic equity funds/ETFs is merely academic for you, since you should have sold all of your holdings in accordance with my sell stop discipline. Until a resurgence of the up trend occurs, I see no reason to be invested in any of the following:

1. Domestic equity funds/ETFs
2. Country funds/ETFs
3. Broadly diversified international funds/ETFs

There are still some opportunities in selected sector funds, but volatility has greatly increased and many may be nearing the end of their individual trends. If you’re the conservative type, stay safely on the sidelines in money market.

If you’re more adventurous, you can consider the short side of the market, however, I recommend a cautious approach with limited exposure and a tight stop loss discipline. Personally, I will wait till next week to see if there is a bounce back from these lows, and if the TTI remains in negative territory, before I consider adding any short positions.

About Ulli Niemann

Ulli Niemann is the publisher of "The ETF Bully" and is a Registered Investment Advisor. Learn more
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