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

Market Update

The market week began with a lack of Wall Street reaction to a proposal by Treasury Secretary Henry Paulson to bestow onto the Federal Reserve increased powers to protect the stability of the entire financial system. This comes just a week after the agency came under fire for overreaching in its aggressive handling of the Bear Stearns bailout. On Tuesday, financial stocks led a strong market rally in surging volume which saw most indexes jump over 3% on the day. Many on the Street viewed this as a confirmation of the rally begun earlier in March and, indeed, this bullish market action on rising volume was enough for our Model to trigger a Buy signal after the close on Tuesday. Be sure to read this week's "Trend Timing School" article below for the possible implications of this bear market Buy signal.
Since the rally occurred in the face of more bad news from financial firms, a worsening economic backdrop and sharply falling metals prices led by gold to under $900, many viewed the rally as a flight from safety. It certainly appears that investor behavior has changed, for now. Just a couple of weeks ago, any rallies were welcome opportunities to dump stocks, now it seems like any bad news is taken as an opportunity to buy. As a sign of the times, Fed Chairman Bernanke's first public admission that the U.S. is likely headed into a recession, even without the promise of further rate cuts, caused markets to rally further.

For the week, the Nasdaq 100, Russell 2000 and S&P 500 posted respective gains of 5.56%, 4.47% and 4.20% on the week. All three indexes have now reclaimed their 50-day Exponential Moving Average (EMA) but remain under their individual 200-day EMA.

World equity markets were not nearly as enthusiastic as their U.S. counterparts in the face of bad economic news and, accordingly, our World Index Ranking portfolio gained a more reserved 1.60% this week.
The portfolio consists of the 5 top-ranked world indexes as of March 31, which marked the beginning of the current 4-week holding period. Please note that since we now have an active Buy signal, the World Index Ranking "Long Only" and "Long and Short" strategies call for buying back the top 5 indexes. Please go to our "Strategies" page for all the details.

We now have a Buy signal in effect.

Trend Timing School

Bear with us

We apologize for the cheesy double meaning title, especially when this article should have been under the "Bear market Buys" heading all along. We simply could not bring ourselves to divulge the very recent Buy signal to non-member visitors who can see the titles of Weekly Update articles.

The first surprise most of us must overcome, whether old hands or newcomers, is to actually get a Buy signal in the early phase of a bear market. Just a few years of bull markets will dull your memory. Bear markets happen for serious fundamental reasons and the underlying causes do not dissipate in mere weeks or months. While shorter than bull markets on average, bear markets generally take years to play out.

Still, no market goes straight up or down. Just like bull markets are interspersed with pullbacks and corrections, bear markets have their own reactions. During a bear market a correction is called a bear market rally. Their swiftness and intensity are legendary and they are frequently defined as advances of 10% to 20%. They are vicious and renowned to cause tears because their suddenness and strength lures many unsuspecting investors back into the market just in time for the next steeper leg down.

For a technical point of view we offer Chart 1 below. The six months picture tells a long tale and nicely sets up the two major scenarios we face moving forward. Using the Nasdaq Composite index as a proxy for broad world equity markets which mostly move together (we know this always seems like a stretch but trust us, they consistently do), we can clearly see the major down trend begun last fall and the bottom established in March. Since then, the U.S. and strongest world markets have started a rebound rise. The rally off the lows has been strong enough to trigger a change of intermediate trend.

Chart 1: Technical view of the current market rebound



The million dollar question is the following: was this a bottom, or was it the bottom? In other words, is this a temporary rally which will fail to make new highs or is it the beginning of the next bull market?

For starters, markets have to reclaim the previous intermediary top established on February 1st, around 2413. The next challenge appears to be much more formidable. The 200-day Exponential Moving Average (EMA), the red line in the chart, is traditionally a strong support/resistance area and this time around it is converging with another strong technical indicator, the down trend line drawn from the October 31, 2007 high. This convergence zone between 2450 and 2550 will be a key test for this rally. Just to set our expectations, not to speculate on the outcome, during bear markets, three out of four rallies fail to reverse the trend. Statistically speaking, the most likely scenario is that the rally will continue until it runs into major technical resistance zones to then falter and turn around to set new bear market lows.

On the other hand, we cannot discount the possibility that this is the end of the bear market and the beginning of a new sustained rise. As trend followers we never let our emotions, our guts, or our superior intellectual capacities get in the way of what the market is telling us. The moving averages and the trend lines themselves play no direct role in our Model, but they graphically illustrate so well what is happening in the markets. Our Model issued a Buy signal because our key indicators combining price and volume action have indicated a decisive change of market behavior and the rebound has clearly tilted the intermediate trend upwards.

We never predict, and we never bet against the mid-term trend which our Model tracks, even if it is a bear market Buy signal.

FAQ of the Week

Question: Do the top indexes in the TimingCube World Ranking match the top ranked funds in ETFTide?

We have written a number of comparisons between the two services in the past and a good short read for details on the subject is "Why the discrepancies between World Index Ranking and ETFTide systems?", but this is a very appropriate time to highlight one of the key differences.

The TimingCube system is entirely stock market centric, trending with and investing in broad stock market indexes exclusively. During rallies it invests in the strongest world markets and during downtrends it takes protective measures by going to cash or shorting the market, depending on the selected strategy.

In contrast, the ETFTide system encompasses not only broad equity markets but also ETFs investing in specific company sizes, types or industry sectors as well as ETFs investing in non-stock asset classes such as bonds, commodities, currencies and real estate. During prolonged stock market weakness, ETFTide will rotate into more defensive non-equity asset classes which outperform at such times. Being in a bearish global stock market phase, it is not surprising that a large part of the ETFTide Portfolio holdings (the Top 5 ETFs ranked by momentum) currently are in commodity related assets.

Warm wishes and until next week.

The TimingCube Staff