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

Market Update

After a brief pause, markets returned to their winning ways this week. The Dow Jones Industrial Average closed at a new all-time high while the Nasdaq Composite finished above the 2,500 mark for the first time since February 2001.
Apple introduced its long-awaited iPhone on Tuesday. The well-received announcement boosted the tech sector and helped the Nasdaq 100 close higher each day of the week. Stocks were also supported by lower energy costs, as crude oil prices hit fresh 18-month lows. Friday brought more evidence that the economy remains healthy: retail sales increased by 0.9% in December, the largest monthly rise since July. Investors cheered the news as it countered the perception that consumers might reduce their spending due to the slowdown in the housing sector. Please note that US markets will be closed on Monday, January 15 in observance of Martin Luther King Jr. Day.

The Nasdaq 100, Russell 2000 and S&P 500 respectively gained 3.33%, 2.37% and 1.49% on the week. All three indexes are back above both their respective 50-day and 200-day exponential moving averages (EMAs).

For its part, our World Index Ranking portfolio underperformed the US averages as it posted a modest 0.21% loss this week. The portfolio consists of the 5 top-ranked world indexes as of January 5, which marked the beginning of the current 4-week holding period.

Our current Buy signal remains in effect.

Trend Timing School

Trend Timing revisited

TimingCube being the home of Trend Timing you would expect that much of what we write about is at least somewhat related to that general topic, especially in the appropriately labeled "Trend Timing School" column. With this in mind it came as a surprise to realize how long it has been since we provided a solid definition for the Trend Timing investment approach. We realize that most of our subscribers have not been around since the early days when the Trend Timing School articles established the foundations of our investment system and philosophy (and most have better things to do with their lives than to read hundreds of past articles.) With this in mind we decided to start the New Year with a series of articles which should help everyone come up to speed on Trend Timing, the Model that drives our signals and our strategies.

The first place to start is with our own Glossary which defines Trend Timing as: "A unique form of market timing consisting of following the broad market trend to profit in both rising and falling markets. An alternative to buy and hold investing. TimingCube are the inventors of the Trend Timing investment philosophy."

Where buy and hold investors stay invested all the time on the basis that over the long haul stock markets always go up, Trend Timers on the other hand realize markets will continue to be a succession of up and down trends and that it is counterproductive to spend much of the uptrends recouping the losses experienced during the previous downtrend. Since we are investors, not traders, we are not trying to exploit short term blips, imbalances or swings. Instead we want to participate in all meaningful advances and to do that we need to be fully invested most of the time, even through market pullbacks and some corrections. We will however step aside during major downtrends in order to keep our powder dry for the next uptrend, or better yet, profit from the downtrend as well as by shorting the market.

When it comes to market timing there are many approaches with a mixed track record. Surprisingly, many timing schemes are based on outright predictions. This is not only true for tea leaves readers and other astrologers, but for many seemingly scientific methods such as market cycle theories and seasonality investing. We never predict what the market should do next. Instead, we let the market tell us what it is doing. We are trend followers and we do not predict the direction of the trend, how long a trend will last or how strong it will be. No one can. Trend following is a style of stock market investing which uses observation of the broad market trend, and the detection of trend changes, to derive the timing of Buy and Sell signals.

Even within the ranks of trend followers there are many varieties of approaches. Everything has trends, and they can range from mega trends to micro trends. We are after the broad stock market trend, not individual stocks industry groups or indexes, on the age old principle that a rising tide lifts all boats. The timing horizon or duration of the trend is another key distinction. As long-term investors, the trend we are interested in is where the market is likely headed in the next 3 to 6 months, which correlates with our average of about 3 trades per year and average signal duration of about 4 months. The broad market approach and the mid-term trend orientation not only shields us from much of the market noise but it also yields the unique characteristic of having a single trend indicator for not only a particular U.S. market segment but for all the major world markets.

The predominant stock market trend is either up or down. Even during periods when the market seems trendless, the underlying trend remains until the Model detects a change and a signal is issued. The beauty of Trend Timing is that we always know exactly where we stand. Although the signals are sometimes perceived as an event or a finite point in time because we issue an e-mail on the day a trend change is detected, as long as the trend is up we have a Buy signal, and as long as the trend is down we have a Sell signal. The Buy and Sell conditions remain in effect until the next trend change.

Next week we plan to review the Model which drives the signals.

FAQ of the Week

Question: Why do index ETFs not always perform as the indexes they track?

By and large, index ETFs actually do a very good job at achieving their daily performance goal of matching the index they track. Daily tracking is generally not the issue. Over time however, there are differences that creep in which, in certain cases, can be significant. These discrepancies can be in your favor or not. Depending on the type of fund, there can be three separate causes for ETF-Index divergence. Note that so-called closed-end ETFs are not index ETFs and cannot be expected to track an index.

Warm wishes and until next week.

The TimingCube Staff