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

Market Update

It has been a very positive week for stocks, with both the Dow Jones Industrial Average and the Russell 2000 hitting new all-time highs. The Federal Reserve announced Wednesday that it was leaving interest rates unchanged at 5.25% for the fifth straight time. The Fed pointed to a strengthening economy. It also noted that core pricing pressures have eased but that wage inflation is continuing. Even though the statement clearly implied that the Fed will not cut interest rates anytime soon, investors obviously liked what they heard as the major averages rallied after the announcement. The Labor Department said Friday that the economy created 111,000 nonfarm payrolls in January, less than the 150,000 that had been anticipated. While disappointing at first, it should be noted that the number is likely to be revised higher as the December figure was, with an additional 39,000 jobs. Oil prices continued to rebound, closing the week at their highest level of the year ($59 a barrel).

For the week, the Nasdaq 100 and S&P 500 respectively gained 1.42% and 1.84%. Small stocks did even better, as the Russell 2000 posted a gain of 2.70%. 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 posted a 2.25% gain 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. The World Index Ranking portfolio is being rebalanced today, as the current 4-week holding period is now over. Please note that since we now have an active Sell signal, the World Index Ranking approach calls for selling your holdings if you follow the "Long Only" or "Long and Short" strategy. You should remain invested in the top 5 indexes only if you follow the "Buy and Rebalance" strategy, which remains invested at all times. Please go to our "Strategies" page for all the details.

Our active Sell signal remains in effect.

Trend Timing School

The strategies

As promised in the January 12, 2007 update, after having reviewed the basics of Trend Timing and the Model that drives our signals, we continue our series of introductory editorials with a look at the TimingCube strategies. Strategies are important. The strategy or strategies we choose are the plan of action intended to accomplish our specific investment goal, in accordance with our personal risk tolerance. We all have to select our strategies when we begin, but it is beneficial from time to time to review where we stand in the face of a changing environment. For example, the advent of new investment vehicles such as the inverse and leveraged ETFs is making some strategies possible which were impractical only a few months ago. The introduction of the World Index Ranking service has also added a new dimension to our strategy choices.

Ideally, even Trend Timers would like to be invested for the long term and be able to just forget about their investments. We are really like buy and hold investors at heart, almost. Like them we seek to participate in all meaningful market advances, but in stark contrast with them we also want to avoid all significant declines. Yes we know that the stock market goes up more often than it goes down, and that over time markets always go up. We also know that every once in a while a severe bear market occurs which can wipe out a generation of investors and require many years to recover from. Whether we are in our forties or already retired, our investment years are extremely precious and we believe they should be spent building wealth, not recouping losses. To side-step significant declines Trend Timing defines four distinct investment strategies presenting the investor with diverse risk/reward choices. They consist of two basic strategies, each with a leverage option:

Long Only
This is the most conservative investment strategy we follow. Conservative yes, but it beats buy and hold consistently. It keeps us invested during Buy signals, and puts us safely in cash or money market funds during Sell signals.

Long Only with Margin*
Same as Long Only, with leverage applied. For example, with full margin, when the reference index goes up 1% your investment gains 2%. The same goes for losses.

Long and Short
This is our bread and butter strategy which we view as the optimal risk/reward tradeoff. Like Long Only it keeps us invested during Buy signals but during Sell signals we short the market in an attempt to benefit from the potential decline.

Long and Short with Margin*
Same as Long and Short, with leverage applied

* Note that while we list the "with Margin" strategies as full fledged strategies we do not recommend that the average investor uses more than 20%. Very few of us have the stomach for the wild ride a fully margined portfolio is sure to deliver.

When selecting a strategy it is important to remember that Trend Timing is fundamentally an insurance policy. No investment system is perfect and not all Sell signals our Model triggers are the beginning of a severe decline. Sell signals can end-up being false alerts, small pull-backs or corrections delivering small gains or losses. This is the price we pay, the insurance premium so to speak, for protection against the significant bear market losses. We will make most of our money during Buy signals. The Long and Short strategies will frequently trail the Long Only and even the buy and hold strategies during long ascending market phases. On occasion when the bear market hits, the Sell signals can provide Long and Short investors some handsome rewards for their patience to put them ahead of the pack when it comes to long term returns.

For many, at least some of the strategy decisions are dictated by what is allowable by the broker in the type of account we have or by what investment vehicles are available. At the most limiting extreme of the scale are retirement accounts such as 401(k) which typically offer a small set of investment options which most likely excludes any shorting or leverage choices, leaving us with the Long Only strategy. IRAs used to have the same limitations but the advent of bull/bear mutual fund families (Direxion, ProFunds, and Rydex) and more recently of short and leveraged ETF offerings (ProShares) has removed much of these constraints.

In additon to choosing a strategy we also have to decide where we want to invest. Traditionally, our U.S.-based subscribers have selected two or three U.S. market indexes to follow (e.g. Nasdaq 100, Russell 2000, and S&P 500) and allocated their funds among them for diversification. Since the introduction of the World Index Ranking service we now have the option of targeting the strongest markets. Even for investors who feel more comfortable with U.S. markets, the rankings let you target the strongest of the 7 U.S. indexes included in the list.

To the fundamental Trend Timing principle of "participating in all meaningful advances and avoiding significant declines" the World Index Ranking service adds the notion of participating in the world's strongest markets. The addition of the momentum-based targeting of the World Index Ranking and its combination with the basic directional TimingCube Buy/Sell signals instigates three new distinct strategies:

Long Only
This strategy invests in the top 5 indexes and rebalances every 4 weeks during Buy signals, and goes to cash during Sell signals

Long and Short
This is the main stream strategy which invests in the top 5 indexes and rebalances every 4 weeks during Buy signals, and goes short QQQQ shares during Sell signals. An alternative to shorting QQQQ is to simply buy the inverse ETF ticker symbol PSQ

Buy and Rebalance
This strategy ignores the Buy/Sell signals altogether and stays fully invested in the top 5 indexes at all times, and rebalances every 4 weeks. We do not particularly advocate this strategy but include it as reference (a reference which also happens to beat buy and holding the U.S. markets)

Note that for the World Index Ranking strategies we intentionally omit the "with Margin" strategies because we feel that the higher volatility and risk inherent in the top ranked world markets represents sufficient leverage for most of us.

Most investors have different types of accounts and will adopt a blend of strategies to accomplish their varied objectives. The important things to remember when selecting a strategy are to keep it simple and manageable, and to only take on as much risk as we are willing to live with.

FAQ of the Week

Question: Why is the TimingCube service index-based?

It was always our intent to focus on the broad stock market trend and not that of individual investments. Basing our Model on widely accessible and respected stock market indexes was the obvious choice then as it is now. In addition to driving our Model with the Nasdaq Composite
index our service tracks and reports performance for selected benchmark indexes. In turn our subscribers are free to implement the strategies with whatever investment vehicle they desire: ETFs, mutual funds, options or futures.

This question has come up more frequently since we introduced the World Index Ranking service. ETFs following U.S. indexes have tracked well but the same cannot always be said for ETFs following foreign indexes. Read the FAQ of the weekly update we sent on January 12, 2007: "Why do index ETFs not always perform as the indexes they track?" for details. Because of performance differences which occur from time to time between some ETFs and their indexes, some have come to wonder why we do not simply rank the ETFs instead of the indexes. Our motivation for sticking with the indexes goes beyond preserving the freedom to choose your investment vehicle. The World Index Ranking is designed to identify the strongest world stock markets, independent of other parameters such as fluctuations in exchange rates. Not only is our index-based ranking currency agnostic but it can also be used by our International subscribers, neither of which could be said with an ETF-based ranking system.

Warm wishes and until next week.

The TimingCube Staff