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

Market Update

In the continuation of last week's action, this holiday-shortened week started with more gains, as small caps and technology stocks led the markets higher. The move helped the Nasdaq Composite hit a new 6-year high by finally breaking the 2,500 mark after a previous short-lived attempt in January. For its part, the small-cap Russell 2000 index reached its highest level ever. The latest consumer inflation numbers were released on Wednesday. The CPI (Consumer Price Index) came in at 0.2%, topping views of 0.1%. The negative surprise initially knocked stocks lower, but small-caps and tech stocks again outperformed to post gains for the day and hit new highs. The semiconductor SOX index rocketed 2.8% Thursday, helping tech stocks build on their gains despite rising oil prices and negative geopolitical news, with Iran missing the U.N. deadline to suspend its nuclear activities. All major indexes sported modest losses Friday, as higher oil prices and worries about the mortgage market provided an excuse to take profits.

For the week, the Nasdaq 100 and Russell 2000 respectively gained 1.00% and 1.04%. The S&P 500 did not do as well, as it lost 0.30%. All three indexes are still above both their respective 50-day and 200-day exponential moving averages (EMAs).

For its part, our World Index Ranking portfolio posted a 0.37% loss this week. The portfolio consists of the 5 top-ranked world indexes as of February 2, which marked the beginning of the current 4-week holding period. The World Index Ranking "Buy and Rebalance" portfolio is now up 20.03% Since it was introduced on September 15, 2006. It has gained 4.85% year-to-date.

Just two weeks ago, it looked like the market correction anticipated by our January Sell signal was starting to materialize. Unfortunately, it did not happen, as continued improvement in the Nasdaq Composite's price and volume action since then caused our Model to issue a new Buy signal Tuesday evening, forcing us to close our short positions at a loss. We do not like to suffer any such losses, even the relatively tame 2% on the Nasdaq 100 and S&P 500 and a steeper 6% on the Russell 2000, but they are the price we pay from time to time as downside insurance. We now have a Buy signal in effect.

Trend Timing School

ETF Review

The ABC's of ETFs gave us a good base to understand what ETFs are, how they work, and why for most of us they are the workhorse investment vehicle. In this article we will attempt to review the rapidly expanding universe of funds in search for those that are best adapted to our investment style and strategies. With hundreds of funds and the numbers growing steadily, keeping on top of the latest ETF developments can be a big job, and we are happy to distillate our on-going research into the core list of investment funds best adapted to our strategies. We will describe the fund families and their respective offerings here, but the resulting list of ETFs we recommend using for the various U.S. and International indexes we track can be found in the "What to Trade?" section of the "Resources" page. Note that unlike mutual funds where the notion of "fund family" can be important for trading, such as the ability to exchange between mutual funds of the same family, the world of ETFs has no such limitations or dependencies. The only reason we approach this ETF review from a product family perspective is that it provides some order and organization to an otherwise much disorganized bunch.

Barclays iShares Funds.
There are so many iShares ETFs (125 at last count) that it is hard to characterize them otherwise than simply as part of the largest ETF family in the industry. As the most diverse ETF offering, iShares comprise everything from broad-based markets, international/regional, industry sector, market cap and style, fixed-income (bonds), and commodity products. The majority of their specialty and sector products are not applicable to our Trend Timing investment system because they are not well correlated with the broad markets we track. Still, we have long used iShares funds for diversification out of the initial U.S. indexes with, worthy of a special mention, IWM which tracks the Russell 2000 index . More recently, the availability of the many iShares country funds has made our World Index Ranking system possible.

Dow Jones Industrial Average Funds.
Their Diamonds Trust Series I fund, or DIA, to this date remains the lone fund in this family.

Merrill Lynch HOLDRs Funds.
Holding company depositary receipts, HOLDRs for short (pronounced "holders"), have been around for years but for various reasons they do not make our short list of recommended ETFs. For starters they are primarily industry sector funds, but they do not follow published indexes. Rather, they each invest in 20 companies selected by Merrill Lynch as representative of a sector, which over time causes issues of over concentration in a few stocks. Another annoyance of HOLDRs is that they have to be purchased in lots of 100 shares.

Nasdaq Funds.
The original Nasdaq 100 Trust Series I fund, QQQQ or Qubes, has been joined by
ONEQ from Fidelity which tracks the entire Nasdaq Composite Index, but so far it has failed to live-up to its predecessor's success with a relatively small market cap of $118 million.

PowerShares Funds.
PowerShares is another aggressive ETF company which has cranked out dozens of products over the last few years. Their specialty lies in funds which focus on investment style and company size as well as sector and industry funds. Because of their specialization we do not list any PowerShares on our recommended funds list.

ProShares Funds.
The ProShares fund family is no doubt the best thing to happen to Trend Timers in many years. For having pioneered the short and leveraged ETF, ProShares have vaulted themselves from nowhere one year ago to being a prominent player in the industry. They will not remain forever as the only company offering such short and leveraged funds, but the lead they are taking in flushing out their portfolio of funds may be hard for would-be competitors to bridge. Their products aim to provide complete investment choices for specific indexes. For complete investment choices ProShares wants to cover the long and short positions as well as leveraged and non-leveraged resulting in "investment quads". For example, looking at the Nasdaq 100 index, to complement QQQQ which provides a long, non-leveraged exposure to the index (1x), ProShares has added QLD for double exposure (2x), PSQ for inverse exposure (-1x), and QID for double inverse exposure (-2x). By now ProShares products are complete for the following U.S. indexes:

• Dow Jones Industrials
• Nasdaq 100
• Russell 2000
• S&P 400
• S&P 500
• S&P 600

In addition to these important funds ProShares has also provided funds which focus on style indexes (growth and value) as well as industry sectors, none of which correlate well with our broad market system.

Standard & Poor's Index Funds.
Their Standard & Poor's Depository Receipts, or SPDRS, or "spiders" as they are called, have become well known since the early introduction of SPY, the original S&P 500 ETF. In over 10 years of trading, SPY has become our nation's largest exchange traded fund (at over $65 billion market cap) and the SPDRs family of funds has mushroomed to about 30 individual ETFs. These newer products are focused on Wilshire Large/Mid/Small market cap indexes and their style orientation (Growth/Value), as well as a bunch of S&P defined industry sectors. None of these funds qualify for our short list because they are specialized and do not necessarily correlate with our broad market signals.

streetTRACKS Funds.
These funds from State Street Capital Markets have mostly become known for managing the SPDRs funds listed above. Independently, the streetTRACKS name is primarily associated with GLD, the original gold ETF. GLD really offers a way to own physical gold, each share being worth 1/10^th the price of an once of gold. Since commodities do not correlate with broad equity markets, this ETF does not make our short list.

Miscellaneous ETF families.
As you can imagine, with the commercial success of ETFs, everybody wants to get on the bandwagon. Most financial institutions are creating some ETFs of their own, and companies from the giant Vanguard to smaller standouts such as Rydex and Wisdom Tree are bringing us anything from commodities ETFs, ETFs that gain from a falling dollar, ETFs that fluctuate with interest rates, and many more. The bulk of these being specialized they do not fit with our general equity market orientation.

FAQ of the Week

Question: On what cycle do I restart the World Index Ranking?

With the recent Buy signal many of you wondered which ranking list should be used to select the top 5 country funds. The most optimized way to implement the World Index Ranking system is to not delay and buy the most recent top-5 ranked world indexes on the Trade date. When we executed our buy orders on Wednesday the most recent ranking was the one of 2/16/2007, which also sets the beginning of a new 4-week cycle.

As far as our published returns go we opt for simplicity and transparency. Since we track and report on Long Only, Long and Short as well as Buy and Rebalance, it is easiest for us to stay on the same invariable 4-week rebalancing schedule we were on when we started our sample portfolio on January 2, 2001. When a new Buy signal occurs midstream as it did this week, we simply take the 5 positions that were ranked top 5 when the current 4-week cycle started (on 2/2/2007) and get ready to rebalance on 3/2/2007.

Warm wishes and until next week.

The TimingCube Staff