Banks around the globe, especially in Europe, are facing similar problems with mortgage losses.

I once read where a very successful money manager said he liked to invest in trends where if he printed a graph and taped it to the wall, he would be able to spot the trend from across the room. Let’s tape up some charts to get a read on the current state of the world. The charts below are one-year charts which are more relevant to your current portfolio. We’ll start with global stock markets since most investors who wish to grow and protect their purchasing power tend to invest in stocks. Related EFT symbol is shown in parenthesis.

The Dow: Clear Downtrend (DIA)

The NASDAQ: Clear Downtrend (QQQQ)

Foreign Developed Markets: Clear Downtrend (EFA)

Emerging Market Stocks: Downtrend, But Not As Defined As Those Above (EEM)

U.S. Financial Stocks: Clear Downtrend (XLF was overdue for a bounce)

To invest with the trends above, maybe with the exception of the Emerging Markets, you would use inverse funds or ETFs, which rise as the underlying index falls. This may sound somewhat radical, but from a portfolio manager’s perspective, the inverse funds are managed just like any other investment. For example, below is the inverse ETF for U.S. financial stocks (it is 2x the inverse of the index).

Inverse U.S. Financials: Clear Uptrend – Concerning Correction (SKF)

To Make Money Find Trending Investments

Based on the charts of most stock markets above, the trends will have to change before long-term investors can again make money. If a trend has to be in your favor to make money, then you should overweight investments which are doing just that. The inverse Financial ETF above fits the bill. Let’s see what other markets are in clearly defined trends.

Commodities: Clear Uptrend (DBC)

Commodities are experiencing a long-overdue correction as I type. Based on past corrections above, within the context of the ongoing uptrend, the current correction is not yet alarming (in physical commodities - stocks are more of a concern). However, you should watch the situation closely due to the slowing global economy and recent run-ups in prices. The commodity bull-run will end some day, but we don’t need to call a top. We can wait for evidence to mount which supports the probability of a trend reversal. Look at the sharp correction which occurred in March of this year. The press and many professionals called a top in commodities for the countless time during this bull-run. The gain from the March bottom is significant. Please do not interpret these comments as bullish. A top will come – it may be happening right now – but even if this is “the top”, in the long run in order to stay with profitable trends, you are better off waiting for more evidence prior to giving up on commodities. We may be wrong doing so now, but over time and over many instances we will be right more often than not, which is an important concept in the process of making money. One way to help take some emotion out of the decision making process is to make consistent decisions based on specific criteria. You evaluate the decision based on its merits rather than on the outcome. In the markets, to make money we know we can still be wrong on some decisions as long as we do not let the losses run too far. Risk control, which includes cutting losses, is important in all markets, including commodities. Moving on to other markets or investments which are currently trending favorably:

Gold: Uptrend, But Taking A Breather (GLD)

Metals & Mining Stocks: Uptrend, But Correction of Concern (XME)

Agricultural Stocks: Uptrend, But Correction of Serious Concern (DBA)

Agricultural Commodities: Uptrend, But Currently Drifting (MOO)

Steel Stocks: Uptrend, But Correction a Concern (SLX)

Energy Stocks: Uptrend, But Once Again Current Correction Very Concerning (XLE)

U.S. Dollar Index: Firm Downtrend, But…

… Investments Can Take Advantage Of The Weak Dollar (CYB, MERKX, etc.)

You may have noticed that all the up trending markets are commodity related or weak dollar related. Since commodities have a strong correlation to a weak dollar it is obviously a concern in terms of portfolio risk. In recent months we have continually searched for other alternatives with very limited success.

Biotech Stocks: Not a Strong Trend, But Better than the S&P 500 (XBI)

Since there are very few markets trending upward, the inverse funds of downward trending markets offer some alternatives to commodity and weak dollar plays.