As the Dow Jones Industrial Average soared today to a nearly 900-point gain, the largest financial exchange traded fund (ETF) rode the top of the wave.

The Financial Select Sector SPDR (XLF) gained a one-day trading record of 15.7%, the biggest jump for the fund since its inception nearly 10 years ago, reports Greg Morcroft for MarketWatch. The previous record for the fund was this July 16, when it rose 13.1%.

Whether today’s move was the beginning of a trend or just a dead cat bounce, the market rebound will happen and we need to be ready for it. A number of funds are up 15% and 20% since the market low, while some others are less than 10% below their 50-day moving averages.

There are trillions of dollars sitting on the sidelines right now as investors ride out the storm, but when the bottom hits and a rebound begins, investors need to be mentally prepared and ready to go.

Most funds are far below the 200-day moving average, meaning it would be a long wait before a signal to buy is reached. We haven’t been so far below the long-term trend lines in decades. As a result, we have a short-term plan for getting back into the markets if the rebound is real:

  • When a fund crosses above its 50-day moving average, put 25% of the value of your portfolio.
  • When the fund goes up 5%, put another 25% in.

By the time this happens, the 200-day moving average should be well within sight, and things should begin operating in line with our normal buy parameters once again.

We need to be clear: no one is saying that the bottom has been reached. We only need to be ready in the event that it happens (and someday, it will happen). It might happen so swiftly but quietly that it will catch everyone off guard.

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