Signal Type	Trade Date	Index	Return since issued
		Nasdaq 100
		Russell 2000
		S&P 500

Market Update

It has been a short week for investors as markets were closed Monday for New Year's Day and Tuesday to honor President Gerald Ford's memory. Stocks started 2007 on a strong note Wednesday thanks to lower oil prices and to manufacturing and construction spending reports that came in better than expected. The gains did not last as the release of the Fed's minutes showed that policymakers are still concerned by the pace of inflation. Stocks retreated immediately as the news implied that the Fed might not be ready to cut interest rates anytime soon. Still, the major averages managed to close mostly higher after rallying in the session's final hour. With oil prices continuing their retreat, markets moved higher again Thursday led by technology stocks, the Nasdaq 100 gaining almost 2% on the day. The closely-watched employment report was released Friday and showed that nonfarm payrolls unexpectedly increased by 167,000 in December, while hourly earnings rose a larger-than-expected 0.5%. with such strong numbers making it unlikely that the Fed will lower short-term interest rates in early 2007, investors took money off the table and the major indexes retreated as a result.

For the week, the Nasdaq 100 gained 1.62%. The S&P 500 and Russell 2000 did not fare as well, as they respectively lost 0.61% and 1.50% on the week. Both the S&P 500 and the Nasdaq 100 remain above their respective 50-day and 200-day exponential moving averages (EMAs). As for the Russell 2000, it is now located slightly below its 50-day EMA, but remains well above its long-term 200-day EMA.

For its part, our World Index Ranking portfolio lost 0.63% this week. The portfolio consists of the 5 top-ranked world indexes as of 12/08/2006, which marked the beginning of the current 4-week holding period. Please note that the World Index Ranking portfolio is being rebalanced today, as the current 4-week holding period is now over.

There is no change as far as our Model is concerned and our Buy signal remains active.

Trend Timing School

2006 Year in review

In retrospect 2006 was a year of contrasts and transitions, both for the markets and for the TimingCube service. U.S. markets continued to lag world markets as they experienced a third consecutive year of mostly going nowhere, with the Nasdaq 100 once again the worst of the indexes we track. TimingCube saw contrasts between a struggling summer stretch that delivered unprecedented back to back whipsaws and much improved returns since the introduction of Model enhancements and the addition of the World Index Ranking service.

For subscribers implementing our strategies using mainly U.S. investments, 2006 delivered disappointing performance, to say the least. As always, we try to give you the facts and spare you the spin. Table 1 below shows the results using our live signals with the three primary U.S. indexes. While there are no negative numbers (and some say that any positive year is a good year), it is the first time in our entire live and backtested history that we under perform Buy and Hold, and we don't like it. We have repeated many times that no investment system is perfect, and the stock market has a way of humbling the best from time to time. A look at the actual trades on the "Trades History" page tells the story, with three consecutive losing signals as our old Model got tripped up with conflicting trends.

The numbers are not disastrous but they fall far short of our expectations. We also recognize that individual investors have experienced varied results. Many who have heeded our frequent pleas for international diversification (as in the annual review exactly one year ago) have done extremely well. Others, with less diversification, excessive leverage or unreliable signal tracking have fared substantially worse.

Table1: Actual results with live signals

	Long Only	Long & Short	Buy & Hold
Nasdaq 100	0.73%	0.02%	6.94%
Russell 2000	12.55%	10.66%	17.10%
S&P 500	7.69%	6.19%	13.60%

Luckily we are firm believers in continuous improvements to insure that our investment system evolves and adapts to new market realities. The reason we modify our Model so infrequently is that any improvement has to meet stringent rules:

• Stay true to our Trend Timing principles of delivering a 100% mechanical system
• Focus on mid-term trends for infrequent trading
• Not engage in curve fitting or other tempering with historical model behavior
• Must improve the entire backtested period (to 1989)

We have carefully studied what happened with the increasingly trendless U.S. markets and the whipsaws which occurred in June/July, and on July 14 we introduced enhancements to the Model which have been in effect since then. All told, these were fairly minor adjustments to the old Model with the most visible one being our current Model's ability to detect conflicting simultaneous bullish and bearish patterns to suppress spurious signals. While minor in nature, as can be seen in Table 2 below, the enhancements would have avoided the summer whipsaws and made a major positive impact on performance.

Table 2: Results with current Model
(Backtested prior to going Live on July 14, 2006)

	Long Only	Long & Short	Buy & Hold
Nasdaq 100	12.74%	24.44%	6.94%
Russell 2000	23.59%	37.00%	17.10%
S&P 500	14.52%	20.10%	13.60%

On a separate front, our long-term research project on marrying the trend following characteristics of the TimingCube Model with the relative momentum of various market indexes yielded the World Index Ranking service that was launched on September 15^th. Table 3 below shows that the service is off to a fantastic start and we look forward to the ability to target the strongest markets wherever they may be.

Table 3: World Index Ranking results

	Long Only	Long & Short	Buy & Rebalance
2006	35.60%	50.95%	24.34%
Live (since 9/15/2006)	14.48%	14.48%	14.48%

Regardless of the experience we always like to learn and grow wiser and wealthier. We can sum up the lessons of 2006 as follows:

• Never lose humility
• No investment will ever go straight up and no investment system is perfect at all times
• Remember that the first and foremost objective of trend timing is to keep us safe from major market drops
• Always diversify across market indexes, geographies and strategies
• Remain steadfast in implementing the system

With this in mind we enter 2007 in a much stronger position on several fronts:

We thank you for your loyal support through a difficult year and confidently look forward to strong results in 2007 and beyond.

FAQ of the Week

Question: How can a country that has underperformed recently be ranked in the top 5?

This question really has to do with two distinct aspects of the World Index Ranking service:

While the average trend duration for the TimingCube signals is between 3 and 4 months, the momentum which drives the different countries in the World Index Ranking is mostly measured in much longer time intervals. Movements in and out of the ranking's top 5 occur rather slowly with, on average, only one of the 5 positions changing at every 4 week rebalancing. Short term price action has little relationship with the longer term momentum we focus on.

The second part of the answer has to do with volatility. Whenever there are pullbacks or corrections, the markets that were moving most forcefully upward are typically the ones retreating the most as well. This is the short-term effect of volatility, which translates into movements of higher amplitudes, in both directions. We have pointed out that the indexes at the top of the rankings most frequently are the ones with high volatility and risk (which is also why we do not encourage the use of margin with the World Index Ranking).

In some instances, the question originates with holders of the India Fund. The rankings are index driven and while the India index (BSE 30) was still at the top of the list last Friday, the only funds available (IFN and IIF ) are closed-end funds that have been lagging the index of late. Read December 15^th weekly update: "What is wrong with Indian funds?" for more information.

Warm wishes and until next week.

The TimingCube Staff