08/27/2010 John:

Q: Ulli: I follow your reports very closely and wish to thank you for your insights. I have a question. The market was down for the week ending Thursday, August 19, yet the trend tracking index increased from +2.30 to +2.48. I would have expected it to decrease. Can you explain?

A: John: Yes, the domestic TTI does not follow exactly the market as measured by the S&P 500. It contains an interest rate component that at times tends to slow the decline. Additionally, the 39 week moving average gets recalculated every Friday and it is still rising, which also contributed to the TTI’s slight advance.

08/20/2010 Allen:

Q: Ulli: I'm relatively new to the use of trend following and have been doing quite a bit of reading about it both on and off line. I appreciate your willingness to share your thinking through your blog and have been following you for about a month now. One of the things that has become very clear is that the devil is in the details. So much of what seems so clear when you read it becomes rather cloudy when you actually try to apply it. I guess that just confirms the old saying the devil is in the details. So I have a question about how one actually implements a buy or sell signal.

Suppose your Trend Tracking Index gives you a clear "buy" or "sell" signal for a particular asset class and everything else you know supports that signal. Do you buy or sell the full amount you've allocated to that class in a single transaction or, depending on the amount involved, do you move in or out in stages with a series of buys or sells over one or more days? (In either case, I assume you would use limit orders for all transactions, but please correct me if I'm wrong on that.)

A: Allen: While I try to make trend tracking a simple endeavor, there is always some subjectivity involved in the decision making process. As a general rule, that applies more to those of us managing money for clients to account for their varying risk tolerances. As an individual, the process can be less complicated.

Remember that there are only two trend tracing indexes; one for “widely diversified domestic equity funds/ETFs,” and one for “widely diversified international equity funds/ETFs.” All other categories (sectors, Country ETFs) need to be invested in via the crossing of their individual trend lines.

When a buy signal occurs, I allocate as per the client’s risk tolerance. Aggressive clients want to go “all in” since we have our 7% sell stop discipline to cover the downside. For those who can’t handle a potential 7% portfolio drop, I ease into the market with either 50% or 33%.

The exact allocation depends on what the market gives you. Last year, the international TTI signaled a buy first, so we allocated 33% to that arena. The domestic TTI followed a month later and we allocated 33% as well. The balance was filled up on an individual basis with bonds, sectors or country ETFs. There is no hard and fast rule, although I would prefer one; it all depends on which signals get generated first.

08/13/2010 Sid:

Q: Ulli: I'm new to your web site so bear with me. I believe we are in for a bout of deflation. If that is true (what do you think?). I've read that long term bonds is a good place to be. Probably treasuries are the safest. Do you agree? Are there ETF's or mutual funds you might recommend for such an event?

Appreciate your opinion.

A: Sid: Yes; I agree. We have a large portion of our portfolios in BND and IEF, which covers the entire spectrum. I use a 5% trailing stop loss just in case interest rates head higher.

08/06/2010 Allen:

Q: Ulli: I'm relatively new to the use of trend following and have been doing quite a bit of reading about it both on and off line. I appreciate your willingness to share your thinking through your blog and have been following you for about a month now. One of the things that has become very clear is that the devil is in the details. So much of what seems so clear when you read it becomes rather cloudy when you actually try to apply it. I guess that just confirms the old saying the devil is in the details. So I have a question about how one actually implements a buy or sell signal.

Suppose your Trend Tracking Index gives you a clear "buy" or "sell" signal for a particular asset class and everything else you know supports that signal. Do you buy or sell the full amount you've allocated to that class in a single transaction or, depending on the amount involved, do you move in or out in stages with a series of buys or sells over one or more days? (In either case, I assume you would use limit orders for all transactions, but please correct me if I'm wrong on that.)

By the way, your approach of using a "soft" 7% stop loss that you monitor based on closing prices rather than the "hard" automatic 8% stop loss that many recommend makes a lot of sense to me. Easy to do and it gives one an opportunity to avoid whip-saws.

A: Allen: While I try to make trend tracking a simple endeavor, there is always some subjectivity involved in the decision making process. As a general rule, that applies more to those of us managing money for clients to account for their varying risk tolerances. As an individual, the process can be less complicated.

Remember that there are only two trend tracing indexes; one for “widely diversified domestic equity funds/ETFs,” and one for “widely diversified international equity funds/ETFs.” All other categories (sectors, Country ETFs) need to be invested in via the crossing of their individual trend lines.

When a buy signal occurs, I allocate as per the client’s risk tolerance. Aggressive clients want to go “all in” since we have our 7% sell stop discipline to cover the downside. For those who can’t handle a potential 7% portfolio drop, I ease into the market with either 50% or 33%.

The exact allocation depends on what the market gives you. Last year, the international TTI signaled a buy first, so we allocated 33% to that arena. The domestic TTI followed a month later and we allocated 33% as well. The balance was filled up on an individual basis with bonds, sectors or country ETFs. There is no hard and fast rule, although I would prefer one; it all depends on which signals get generated first.

07/30/2010 Gary:

Q: Ulli: My most important question regards RE-entry strategies. You currently have a buy signal. If I'm in cash now and want to enter the market, is there percentage level of the TTI above the trend line which is recommended for new investments? The bigger the gap, the better?

A: Gary: That’s always a crucial issue. When we cross the line from a level below (from bear market territory), I like to see the trend line broken by at least 1% before buying back in. When we reach the line from a level above, you never know whether a break is imminent. For some thoughts on that please review my blog post at:

http://thewallstreetbully.blogspot.com/2010/06/trend-line-talk.html

07/23/2010 Marilyn:

Q: Ulli: Question----am I being "short-sighted" to have all my Vanguard Funds in Bonds: Intermed. Investment Grade, Short-term Invest., GNMA, Intermed. term treas.? Just getting interested in ETF's.

Admittedly, I am not a seasoned investor but I do have about 8 years until retirement, I must maintain a conservative portfolio and do not feel comfortable with options or hedging.

A: Marilyn: No, you are not; that’s the only asset class that is bullish. Read my blog post on the subject at:

http://thewallstreetbully.blogspot.com/2010/07/sunday-musings-deflation-and-double-dip.html

07/16/2010 Jody:

Q: Ulli: After losing a lot of money in the market while investing with an advisor, I have decided that I will take the lead myself.

Besides, if I lose my own money who do I have to blame?

What do you think about a portfolio which is 1/2 bond funds and 1/2 preferred stocks?

Admittedly, I am not a seasoned investor but I do have about 8 years until retirement, I must maintain a conservative portfolio and do not feel comfortable with options or hedging.

A: Jody: Sure, for right now, your idea sounds reasonable. However, you still need to track price actions and implement sell stops should the need arise.

07/09/2010 Steve:

Q: Ulli: I was wondering what was the safest investment in the 1929- 1932 depression. I am very concerned about the state of the economy, the foreign debit and the ever increasing debit of the USA.

I want to sleep at night, being 65 and retired I can't make back loses, therefore I want to protect my principal. Would you please give us your perspective on this issue and your recommendation of an investment for safety and capital preservation in these volatile times?

A: Steve: There is no way to anticipate what investment will best preserve your capital in these uncertain times. You may want to review my recent blog post on the subject:

http://thewallstreetbully.blogspot.com/2010/07/sunday-musings-deflation-and-double-dip.html

Right now, until trends change, the safest position is in BND (and of course cash), which we own as a portion of our portfolios. Of course, sooner or later, we will get stopped out and have to re-evaluate.

07/02/2010 Gary:

Q: Ulli: Quick question about a small account (less than $10k). Do the free ETFs at Schwab provide enough choice and diversity for a person to use just those while following your signals?

A: Gary: Yes, for such a small amount, I would not hesitate using Schwab's transaction free ETFs.

06/25/2010 Gary:

Q: Ulli: My most important question regards RE-entry strategies. You currently have a buy signal. If I'm in cash now and want to enter the market, is there percentage level of the TTI above the trend line which is recommended for new investments? The bigger the gap, the better?

A: Gary: That’s always a crucial issue. When we cross the line from a level below (from bear to bull market territory), I like to see the trend line broken by at least 1% before buying back in. When we reach the line from a level above, you never know whether a break is imminent. For some thoughts on that please review my blog post at:

http://thewallstreetbully.blogspot.com/2010/06/trend-line-talk.html