Above The Sell Stop

One reader was looking for some clarifications as the Trend Tracking Indexes (TTIs) have retreated sharply with recent market activity. This is what he had to say:

You mentioned some of your sell stops were hit. I have to believe all were hit since hardly anything has withstood a 7% loss, this Tuesday’s rebound notwithstanding.

So given that the TTI is still above the trend line, are we to deploy into those funds that are higher on the charts? Or, are to chill until they take out their highs before jumping in?

Also you mention “we are closer to bear market territory”. Are you talking about “sell everything” situation – assuming there are still some positions we haven’t been stopped out of – or are you talking about actually shorting the market?

As is no surprise, the most volatile funds and ETFs are the first ones to trigger their sell stops as the market corrects. However, not all 7% trailing stops have been triggered, since we owned some conservative holdings that have so far stayed above the sell stop level. I talked about that in more detail in “Using The Benefit of Hindsight.”

If you have been stopped out, be patient as it is not clear yet that the uptrend has resumed. Please review my thoughts on reinvesting as described in “Deploying Stopped Out Money.”

Yes, we have clearly moved closer to bear market territory. What that means is that the TTIs have moved within striking distance of piercing their long term trend lines to the downside.

If that occurs, we will have left the bullish zone. At that moment, you should have no positions at all. As I have posted before, the international TTI has raced ahead of the domestic TTI with the result that we no longer hold any international positions.

Once any of the TTIs cross into bear territory, you can, if you are an aggressive investor, short the overall market by selecting the appropriate ETF. Will I do so? No, most of my clients are too conservative, so I will stay on the sidelines watching the debacle unfold. There may be a long opportunity in certain sectors, but it is too early to tell, which ones they may be.

However, I believe that once this market heads south, we will see a dollar rally, so I have my eyes feasted on UUP, although right now I don’t have any positions in it.

About Ulli Niemann

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