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

Market Update

After a quiet start to the holiday-shortened week, stocks jumped higher Tuesday. The rally was fueled by a better-than-expected housing report and lower oil prices as the tension with Iran began to subside. The markets were able to build on their gains by moving modestly higher on light volume the next two days as oil prices continued to decline. On the economic front, the Labor Department released the March employment report on Friday, and the stock markets closed for the Good Friday holiday. The report was better than economists had expected, as employers added 180,000 jobs in March, more than the 135,000 that had been anticipated. For its part, the unemployment rate dropped to 4.4%. Bond yields moved higher on the news, as investors appeared concerned that with such strong numbers, the Federal Reserve will remain worried about inflation and may have to increase interest rates in the near future.

The Nasdaq 100, S&P 500 and Russell 2000 respectively gained 2.29%, 1.61% and 1.58% on the week. All 3 indexes are now back above both their 50-day exponential moving average (EMA) and 200-day EMA.

For its part, our World Index Ranking portfolio again outperformed the US averages as it posted a 2.41% gain this week. The portfolio consists of the 5 top-ranked world indexes as of March 30, which marked the beginning of the current 4-week holding period. Please note that since we now have an active Cashsignal, 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 Cash signal remains in effect.

Trend Timing School

Risk/reward management

Continuing with our review of important money management techniques we would be remiss not to include risk/reward management in the series. The fact that most of us invest to grow our wealth leads us to concentrate primarily on aspects which can increase performance such as specific ETF selection, yet few are those who recognize risk management as a crucial contributor to long term investment success. And it is no accident or coincidence that Trend Timing is fundamentally a culture of risk management.

There is a very important reason we include the word "reward" in the title of this article, which is that the risks we take with our investments are related, at least to some extent, to the rewards we seek. Even with the best money management techniques and discipline, the stock market exposes the investor to certain risks. For illustration sake, someone who cannot accept any downside risk to their capital has little choice but to park it in a savings account or equivalent (due to fires and burglars, it is our expert opinion that the cash in the mattress alternative presents excessive risks! ). Even then you will note that while your bank account presents little risk in terms of dollar value, you still face the very real threat, a near certainty in fact, of seeing the purchasing value of your capital erode through inflation.

The whole point is that for all of us it is a matter of finding our own optimal tradeoff between expected results and a level of risk we can live with. By seeking higher returns than the 2% savings account interest we must also accept increased hazards. Even bonds, the next step up on the risk/reward scale, trade higher yields for a price which can fluctuate, up or down. Corporate bonds or junk bonds ratchet-up the risk/reward ratio some more. The stock market is widely recognized for best long term historical returns, between 10-15% on average. Average being the key word!

Since as investors we do not live market averages but the day to day extremes, a key starting point for any risk management strategy is to properly set expectations. If you don't know what the risk is you are unlikely to take steps to protect yourself.

We frequently hear the retort about trend following only working during bear markets which, while meant in a derogatory sense, we take as a compliment because it actually holds the key to Trend Timing's risk management approach. That nothing beats a buy and hold strategy during a bull market is a time worn truism. Quite naturally, since a trend must first develop before it can be detected, the trend follower does not seek to trade the tops and bottoms (no one can do so consistently). To add to the timer's woes not all the trend changes detected will develop into a larger correction, and many end up being but minor pullbacks or false alerts entirely. In contrast and to his credit, the buy and hold investor smartly is in the market from the first day of the rally to the very top. Which just happens to be exactly where the buy and holder's smarts and luck run out, and where the risk management magic of Trend Timing kicks in.

What comes after major tops varies from mild pullbacks (anything up to 10%), to the more infrequent corrections (10 to 20%), and finally the bear markets (anything of -20% or more). Even not going back to the great depression of the 1930s, there have been many bear markets which took investors years to recover from. Not too long ago, but seemingly beyond the common mortal's memory span, the tech bubble wipe out of 2000-2002 saw Nasdaq investors lose 78%. Today, they are still down over 50% from the March 2000 peaks.

As in all things when it comes to risk/reward management we advocate a balanced approach. Here are some of the ways Trend Timing helps manage investment risk:

• Avoid all major corrections and bear markets and, for those seeking higher risk/reward, profit from them by implementing a Long and Short strategy. While we do not attempt to time every little pullback or even every correction, our Model will protect us from the major ones. While years can go by between such major corrections, and sadly many would be timers give up before getting to the reward part of the equation, they are what Trend Timing is all about. It is during these infrequent periods that our investing discipline leaps ahead of the competition.
• Limit drawdowns with Cash signals. When a new signal is issued, a 9% stop from the entry point protects us during the most vulnerable phase. However, once our investment has grown by 7% or more, it makes sense to ratchet-up the trailing stop to 15% so that the decline required to trigger a Cash signal remains at 9%, as with our original Cash signal. Once our current position has gained 15% or more, we are only giving back paper gains, not losing real money as on entry.
• Soften exposure to any one market or index through diversification. We have encouraged diversification even amongst various U.S. indexes because they represent different facets of the domestic stock market. We also have been strong proponents of spreading internationally which, with the addition of the World Index Ranking service goes beyond risk mitigation through diversification but also promotes risk avoidance by focusing on the strongest markets.
• Last but not least, provide a manageable alternative to investing with our guts, or worse, with our opinions. The TimingCube system provides the unbiased mechanical guidance and emotional support (we hope) to avoid the biggest risks facing any investor: strategy hopping (chasing the last best performer) and emotional trading in general.
  

FAQ of the Week

Question: Where do Trend Timing School article topics come from?

Ultimately, we here at TimingCube have the responsibility to select the topic we write about but oftentimes they are suggested by subscribers, and we thank you for that.

This week's question is really a poorly disguised way of soliciting your input because frankly, beyond the School's obvious Trend Timing curriculum topics, we would much prefer writing about the investment topics that interested you the most. Please drop us any ideas you have at support@timingcube.com. We look forward to hear from you. Thank you.

Warm wishes and until next week.

The TimingCube Staff