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

Market Update

Stocks started the week where they left off last Friday, that is by moving lower. By Monday's close, all major indexes appeared very oversold after a week of heavy selling. It was therefore not surprising to see the markets stage a decent rebound Tuesday. Stocks were able to recoup Monday's losses and then some, but the gains came on weaker volume, showing a lack of commitment on the part of institutional investors. In fact, it is highly likely that a good portion of Tuesday's gains were fueled by short-sellers who were buying stocks back to cover their short positions. After moving slightly lower the next day, stocks tried to rally again Thursday but gave up a good chunk of their gains by day's end as volume again was lacking. The Labor Department said Friday that the economy added 97,000 nonfarm payrolls in February and that the unemployment rate fell to 4.5% from 4.6%. If stocks initially rose after the release of the jobs report, they quickly gave their gains back as the strong numbers and a rise in hourly earnings also means that the Fed is unlikely to lower interest rates anytime soon.

For the week, the Nasdaq 100, Russell 2000 and S&P 500 respectively gained 1.08%, 1.25% and 1.13%. All 3 indexes remain situated below their 50-day exponential moving average (EMA) but above their 200-day EMA.

For its part, our World Index Ranking portfolio posted a 1.60% gain this week. The portfolio consists of the 5 top-ranked world indexes as of March 2, which marked the beginning of the current 4-week holding period. Please note that since we now have an active Cash 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.

The week did not bring any changes for us and our Cash signal therefore remains in effect.

Trend Timing School

The importance of money management

Many assume that money management involves all aspects of living within the limits of our income, such as budgeting, managing expenses, or devising savings plan, all of which are really elements of personal financial planning and not money management. In the world of investing, money management refers to how you manage your investment positions. The term money manager is predominantly used for investment professionals who manage large pools of other people's money, such as mutual funds. Yet, as investors, we all are our own money manager and the ultimate responsibility for our investments is entirely ours.

This is why, with the possible exception of reining in one's psychological issues, many experts view money management as the most important activity for the investor.

Money management is a vast field about which many books have been written. This article, by necessity, provides an overview of the topic at hand, with many more Trend Timing School articles needed to detail all applicable money management techniques.

Each of us possesses a set of characteristics which greatly influence the money management techniques we need to implement, and to make matters worse, these characteristics evolve over the course of our lives thus requiring our money management approach to adapt accordingly. Key investor characteristics are:

Our investment knowledge base.
The simple truth is that some have never invested in the stock market and are not interested to learn its intricacies, while others spend a lifetime, privately or professionally, learning about the markets and perfecting their trading skills. The former will seek simple hand-off avenues such as actively managed funds or other professional help. The latter will engage in sophisticated stock picking and market timing strategies complemented with risk management techniques such as strategy and investment diversification, hedging, setting of stop losses and the like.

How much time we have available.
The time element plays a key role in shaping our money management approaches. The first measure of availability is how much of our daily schedule we can dedicate to monitoring and attending to our investments, which varies from none to investing around the clock. The other variable has to do with our age and the period left before our investments will be needed for retirement income. Of course this is not purely a matter of availability but also predisposition. Some of us have a lot of spare time available but no interest in spending it worrying about investments. On the contrary, others who are well into their retirement years develop their interest for investing into near full time hobbies and invest in a more active and aggressive fashion than their retiree status would normally call for.

Our risk tolerance.
Knowing our real disposition when it comes to volatility, drawdowns and losses in general is very difficult without the help of first hand experience. Until you lose some of your hard earned money you cannot really know how you will feel. Yet, knowing our inclination or abhorrence for risk is critical because it dictates how aggressive or conservative our investments and strategies need to be. Beyond pure personal emotions, risk tolerance should also be influenced by circumstances such as age, professional status and level of affluence. A young investor can, and probably should, be aggressive because with a time horizon of decades he/she can recover from temporary losses making it possible to optimize performance for the long term. On the other hand, a retiree who depends on his/her investment income for living expenses needs to keep losses to a strict minimum.

Judging by their feedback it is interesting to note that TimingCube subscribers cover the entire spectrum of investor characteristics.

At one extreme you have an investor with no or little previous market experience, conservative, with little time and energy to spare for investing. Traditionally such investors would simply use a buy and hold of index funds strategy or, more recently, one of the "life cycle funds" in which everything is done for you. For example, the Fidelity Freedom 25 mutual fund (FFTWX) which invests in a combination of equity, fixed-income, and money market funds using a moderate asset allocation strategy is designed for investors expecting to retire around the year 2025. It allocates assets among underlying funds according to an asset allocation strategy that becomes increasingly conservative over time.
The only problem with buy and hold, and with the equity portion of the life cycle funds, is that the down side risk is not compatible with the conservative nature of this investor. A Trend Timing approach with index funds would be the best technique to manage the downside risk, but with no time to watch and implement the strategies, this type of investor frequently uses the services of a professional investment advisor.

At the other end of the scale we have a professional trader with high market knowledge and years of experience, dedicated full time to his investments, very aggressive and able to stomach high volatility. This investor will typically invest in individual stocks using various trading strategies and overlay risk management techniques driven by market timing indicators such as the TimingCube signals.

As these characteristics change over the course of our lives, it is important to periodically reassess their impact on our money management game plan.

Inevitably, money management involves the following activities:

• Setting objectives
• Portfolio allocations
• Selection of strategy or blend of strategies
• Risk/reward management

There is a lot to be learned about setting objectives and portfolio allocation, but Trend Timing and the TimingCube service specifically help with strategies and risk/reward management. These money management techniques depend greatly on investor psychology. For strategy selection, inexperienced investors who look at historical returns for various strategies, such as our four basic timing strategies, are commonly tempted to conclude that since it has provided the highest long term returns, the Long and Short with Margin strategy has to be the best. Few understand the volatility induced rollercoaster and potentially devastating impact of margin until they actually experience it.

Another money management bias can be seen with the individual investor being more likely to go with the trend and want to add money or leverage as a trend develops and gathers strength, whereas the professional money manager is more inclined to focus on the risk management side of the equation, with a more contrarian attitude. As a trend advances and technical indicators show overbought/oversold signs, the manager would be looking to lock-in some of the gains and prepare for a correction.

The TimingCube model has built-in money management techniques such as detecting up and down trends to side-step major market downturns, and Cash signals which effectively limit our downside risks. Because of this we generally recommend following the signal with no second guessing, but we recognize that there are many subscribers who actively apply discretion to the implementation of the strategies as part of their money management game plan.

It is not uncommon for investors to feel overwhelmed or somehow inadequate in the face of all the required money management decisions and activities. Investors in that predicament frequently elect to ignore the issue altogether and in doing so make tacit decisions which more often than not turn out to be bad ones. They would be better served by the services of a professional investment advisor such as the ones at our sister company MarketTrend Advisors. Not only can advisors assist with the grand plan, the portfolio allocations, and the design of a suitable blend of strategies and risk management options, but they also take care of the day to day implementation, decision making and trading.

FAQ of the Week

Question: What does options "penny quoting" mean to me?

Unlike stocks which have been quoted and traded in pennies since 2001 on all U.S. exchanges, options are currently quoted in nickels and dimes. Prodded by the SEC (Securities and Exchange Commission), the six U.S. options exchanges have recently begun a penny quoting pilot. The six months penny pilot program is intended to provide the SEC and exchanges with information about the impact of pennies on spreads, transaction costs, order flow and investor benefits. The pilot includes the following 13 options classes, with two we want to highlight in particular, IWM and QQQQ, because they figure prominently in our system:

Advanced Micro Devices, Inc. (AMD)
Agilent Technologies, Inc. (A)
Caterpiller Inc. (CAT)
Flextronics International Ltd. (FLEX)
General Electric Company (GE)
Intel Corporation (INTC)
Ishares Russell 2000 Index (IWM)
Microsoft Corporation (MSFT)
NASDAQ-100 Trust Shares (QQQQ)
Semiconductor HDLRs (SMH)
Sun Microsystems, Inc. (SUNW)
Texas Instruments Incorporated (TXN)
Whole Food Market, Inc. (WFMI)

What is at stake for options investors, assuming that penny quoting has the same impact on options as it had on stocks, is better prices for investors and the closure of unfair loopholes which on certain exchanges have permitted trading in penny increments at prices better than the public quote. 

Warm wishes and until next week.

The TimingCube Staff