This paper studies the asset allocation decision in the presence of regime switching in stock market returns. The analysis is based on two stock indices: DJI 30 and OMX 30. The two-step optimization procedure employed points towards the usage of defensive asset allocation strategies under bear markets and ordinary index tracking strategies under bull markets. The out-of-sample experiments strengthen the performance of active strategies that distinguish between different regimes. Moreover, the Sharpe ratios of portfolios based on such strategies are higher than the ones of ordinary index tracking based portfolios.