If you’re feeling skeptical about any recovery in the markets and exchange traded funds (ETFs) right now, you’re not alone. But what can you do to stay calm and keep your eyes on the prize?

Many recent surveys and the general sentiment is leaning toward a very bright glow at the end of a dark tunnel. Simon Maierhorfer for ETF Guide has a few points that underscore the good news:

  • Goldman Sachs chief strategies Abby Joseph Cohen is convinced that a new bull market has begun.
  • Nobel Prize-winning economist Paul Krugman says that the world has avoided a second recession.
  • On July 23, The Wall Street Journal reported that “the economy has hit bottom.” Furthermore, 90% of economists, according to a survey by Blue Chip Economic Indicators, believe that the recession had ended last quarter.

The flip side to the optimistic points is that although a rally is occurring, the economy is still struggling and it could be awhile before we’re at full strength. For instance, retail spending has dropped again and corporate revenue is still falling, leading to more job losses.

Meanwhile, the fundamental housing market is still in limbo: home prices are still falling, and foreclosures are on the rise, and are expected to triple by 2011. A Bloomberg report just stated that 150 publicly traded U.S. lenders own non-performing loans that are equal to 5% of their holdings. Regulators say there is still risk and this is a level that can wipe out a banks equity and kill it.

How to cope? There are several ways:

  • Be armed with a portfolio that can perform in an up or down market, and to go into the market armed with a strategy.
  • Pick your spots – there are areas of the market suffering, but other areas are in uptrends right now and well above their long-term trend lines.
  • Be okay with any mistakes and use them as learning experiences going forward so you can improve.
  • Keep those emotions quiet by having both an entry and exit strategy. We use the 200-day moving average as a guide. If the trends reverse themselves, stick to your sell plan.

For more stories about trend following, visit our trend following category.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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