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

06/18/2010 David:

Q: Ulli: [In regards to the 1,000 point crash last month]

The crash lasted 15 minutes and was as fast on the way up as it was on the way down. However, at its lowest point the crash brought the Dow almost a 1000 pts (about 10%), or even lower if you calculate the individual stocks that went into the DOW.

The rationale of waiting until the next day to place your order worked well here since the markets rallied up to restore most of the losses. Conversely, the markets could’ve just as easily not come back and the next morning you could be staring at 10%+ losses on your portfolio, far below where your stops were. There is little confidence in me that the next time a plunge happens, the buyers will show up as rapidly to rally into the close.

Your thoughts?

A: David: Actually, some of our sell stops were triggered the day before the 1,000 point drop, and I sold them early in the morning before disaster struck. Sure, your point is well taken, but there is nothing you can do about. Hopefully, if this event ever occurs as you have described, you will have been stopped out of most of your positions prior so that there are not too many holdings left. Of course, buy and holders will be decimated again as usual.

I have found that these wild swings predominantly occur in bear markets, or when we’re below the long term trend line of the domestic TTI. Maybe this was an early indication that we’re headed there. Who knows, but I will stick to my plan of implementing the sell stops, since I have no control over any possible black swan event anyway.

06/11/2010 Barbara:

Q: Ulli: I own quite a few dividend stocks for income in my retirement years. Do these follow the same rules you suggest for selling the regular stocks?

A: Barbara: My exit strategy and trend tracking approach work well for mutual funds and ETFs. Stocks are too volatile, unless you give yourself more room via the sell stop. For some clients, I have used 10-15% as a sell stop discipline for stocks. After all, when a bear market strikes, all stocks go down, and my preference is to be out of the market and not hang on to a stock dividend payment while losing big on the principal side.

06/04/2010 Suresh:

Q: Ulli: While I gathered that you use the high closing price after you purchased the fund/ETF for stop loss calculation, I had a question for purchases made on a day like today, where the market ended in the red.

Hypothetical Example:
yesterday’s close: $52
you purchased today at: $51
Today’s close: $50.

What price do you use for stop loss calculation? (I think it should be $51 since that is my buy price, which is higher than today’s close) Had today’s close been $52, I would take $52.

Thank you in advance for your confirmation.

A: Suresh: Yes, you are correct in selecting the $51 price as your high point.

05/28/2010 Bill:

Q: Ulli: Everyone is so worried about the graph line of the S&P going down over its own 200 DMA. I understand that this is a very important indicator. What about using the 200 DMA as its own indicator? If it heads down, so will the market: sell equities and buy money market funds, bonds, and/or inverse ETFs. If the 200 DMA heads up, sell those and buy equities. What say you? Too simple?

Have a nice trip to and in Germany.

A: Bill: There are actually services promoting this approach. Anything like this is better than buy and hold. A couple of issue to consider when using this method:

1. The S&P 500 moves faster than my Trend Tracking Index and can expose you to more whipsaws.
2. Not using a trailing sell stop will expose you to more losses because on the way down, most profits will evaporate if you wait to sell until the S&P’s trend line has been crossed.

Anyway, it’s a simple way that will work as well, as long as you stick with it.

05/21/2010 Denny:

Q: Ulli: I'm interested in knowing if you are familiar with any strategies, formulas, etc. to determine at what price a person should use to put in a buy order for the next day. Perhaps something based upon that ETF's prior day or days price ranges, such as daily highs & lows, open & closes, etc. I realize this can differ depending on whether a person favors buying on a pullback or buying on a breakout.

Personally, I'm a little uncomfortable buying breakouts out what may be new highs, rather if I feel an ETF may move up soon I'd like to buy it at what may be at the lower price range of the next day. I know, I know, that is asking for a lot, but just curious if there are strategies that can give you an edge. Or maybe you would know of a site that would have information on this issue?

A: Denny: Sorry, I don’t have specific advice for that. When we get a buy signal, we move in the next day; when our stop loss points tell us to sell, we get out the next day. When adding new money during a buy cycle, I try to buy on a down day if possible. However, I have seen that backfire too as the markets kept running away.

There is no fool proof way that I know of that will give you an edge over time.

05/14/2010 Dick:

Q: Ulli: Would you mind sharing your thinking behind the "needless to say" part of the following:

"Needless to say I held off liquidating some our positions whose sell stops were triggered Friday."

In other words, when do you pull the trigger and when do you not (or, when does subjectivity enter into objective trend following)?

A: Dick: No problem; this has been discussed many times. If one of my sell stops has been triggered, based on the day’s closing price, I will enter the sell order the next day, unless there is a huge market rally. That could indicate that this pullback was only temporary and waiting an extra day or so may avoid a potential whip-saw signal.

In case you missed it, I compiled all bog posts addressing sell stop issue in a free e-book, which you can download at:

http://www.successful-investment.com/SellStopDiscipline.pdf

05/07/2010 Homer:

Q: Ulli: DODFX dropped below the 7% sell point and I sold...my question is when do I buy back? How much or what % should it increase prior to re-buying? Thanks.

A: Homer: This was discussed in my blog. In case you missed it, download my free e-book on sell stops at:

http://www.successful-investment.com/SellStopDiscipline.pdf

04/30/2010 Brian:

Q: Ulli: In regards to your blog post on expense ratios, I always use Fairholme's FAIRX as an example. It seems high at 1.0%+ considering assets under management. But would anybody in their right mind argue with 13%+ for a 10 year average?!? Would I rather use a fund with an expense of ratio of 0.25% and accept much less annual returns? Heavens no.

This argument, in my mind, holds much more weight with index funds. Since index trackers are just that, any added expense above and beyond the index, comes out of your pocket. I'll gladly pay a higher expense ratio for a manager who can "earn" the extra return over an index - though this too is debatable. And that argument, is best left for buy and holders. When the trend is your friend, such things become secondary (as you mentioned).

A: Brian: Yes, I agree with you, but these types of arguments never seem to end. Sure, FAIRX is a great fund to own, just not in bear markets. But personally, just like you, I'd rather pay more for good performance, which is why expense ratios never enter into the equation for me.

04/23/2010 Jan:

Q: Ulli: I have an IRA with about 10 mutual funds (Fidelities) in it. I’ve been thinking about ‘converting’ to Roth IRA. The total amount is not that high (divorce and illnesses over last decade),and I might be able to convert and re-distribute at some time this year.

None of my newsletters are suggesting that this conversion be done; they have mentioned it and also about being careful of taxes. My tax bracket is low because of income and house, etc. and deductibles. I plan to work into my 70s or as long as I can without touching retirement funds.

With the benefits of Roth IRAs – no capital gains, no distribution (70.5 years old) age requirement and the children can roll it over to their IRAs, why aren’t more people jumping on this or at least talking about it?

A: Jan: Those conversions are more a tax issue than an investment issue, and should be discussed with your tax professional. It’s a very personalized decision, which is why you may not have read that much about it.