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

Market Update

In the continuation of the bull run that started last July, the markets moved higher again this week, with the Dow Jones Industrial Average closing at a new all-time high of 12,445.52 while the S&P 500 hit a new 6-year high. As expected, the Federal Reserve decided Tuesday to keep interest rates unchanged for the fourth straight meeting. It noted that the housing market has experienced a significant slowdown that investors interpreted as a sign that further rate hikes are unlikely. Stocks remained steady on the news and did so again Wednesday following a better-than-expected November retail sales report. The major indexes then surged on increased volume Thursday, thereby resuming their march forward and were able to hold onto their gains Friday after the release of a positive Consumer Price Index (CPI) report. The CPI and its core version that excludes food and energy costs were both unchanged in November, confirming that inflation remains under control.

The Nasdaq 100 and S&P 500 respectively gained 1.25% and 1.22% on the week. They both outperformed the Russell 2000 which only posted a fractional gain. All three indexes remain located above both their respective 50-day and 200-day exponential moving averages (EMAs).

For its part, our World Index Ranking portfolio gained 1.08% this week and is now up 13.47% since it was first introduced on September 15. The current portfolio consists of the 5 top-ranked world indexes as of December 8, which marked the beginning of the latest 4-week holding period.

Our current Buy signal remains in effect.

Trend Timing School

Preparing for the next signal

First of all, please do not take the selection of this week's topic as a hint or subliminal indication that a signal is around the corner. One could well be, but since our Model does not provide any form of early warning, without a signal proximity indicator we do not know when it will come or what it will be, Cash or Sell. And we never make predictions. Because the current Buy, at 120 days of age, is just about of average duration, we felt that a refresher on preparing for the next signal was appropriate now.

With a mechanical investment system such as our Trend Timing, timely execution of trades is a critical ingredient of success, not just because delays can negatively impact performance but because they often lead to not trading at all. With signals only issued infrequently, they generally come as a surprise and at inopportune times. They seldom come conveniently on a Friday evening and we may not have the luxury of an entire weekend to figure things out and get our act together. In addition to our natural hesitancy and nervousness at the prospect of executing important trades, a myriad of small issues can get in the way of getting our orders placed immediately. It is also well known that the more time passes after a signal is received, the harder it becomes to pull the trigger. For the many new customers for whom the next signal will be the first, and a fair number of others sitting in cash because they failed to follow the current Buy, a thorough review of the simple steps below is particularly important. Make sure to write everything down on paper, and always keep the paper with you when away from home.

Know when and how to get the signal.
The Model is run at the end of each trading day and if a new signal is issued, it will be posted on the Web site and on the "Signal by Phone" message by 7:00 pm ET that same day. Subscribers are also notified of the signal change via e-mail.

• Make sure in advance that you will receive, and recognize, our signal change e-mail. As a precaution you can use the "Test E-mail Addresses" function at the bottom of the "Current Signal" page to verify end-to-end delivery
• If you are going to be away from the Internet or your e-mail for any length of time, make sure you write down the "Signal by Phone" access phone number and your personal access code which you find on the "My Profile" page. And do not forget to check the message daily
• If you have an e-mail enabled cell phone it is convenient to set that address as your alternate e-mail address to receive signals wherever you are
• Yet another option for those with internet access through a SmartPhone is to enter the https://www.timingcube.com/app/html?page=pda_login URL into your phone's browser and follow the usual login steps (see the "Can I access the current signal with my SmartPhone?" FAQ for requirements)

Know where your money is and how to access it.
This may sound silly, but with various accounts, maybe at diverse financial institutions as many of us have, it is highly doubtful we have all the pertinent details memorized. And you do not want to start searching through your filing system on the evening of a signal.

• Grab your little piece of paper and write down all the access information (Web site addresses, account numbers, user IDs and passwords) for every brokerage account you plan to trade
• Also capture the broker phone numbers, just in case their Web site is down or you run into problems
• Identify the moneys you ear mark for the Trend Timing strategy and the securities you will need to sell on a Cash or Sell signal
• If you do not trade frequently we highly recommended that you practice some mock trades. Online systems have a way of changing frequently without notice, and the evening of a signal is not when you want to be learning the ropes

Pin down your strategies.
Much too frequently we leave such fundamental decisions till the last minute, when it is really too late to make well thought out choices. Do it now. Review the "Strategies" page in detail and decide.

• Which moneys in which accounts will follow the basic timing strategies? How much in "Long Only" and how much in "Long and Short"? You may elect to go short with only a fraction of the amount you go long with, or be forced to do so by limited choices in a 401(k) plan for example. How much leverage will you use? Remember that for the average investor we do not recommend more than 20% on margin, because most of us cannot take the roller coaster ride higher levels of leverage never fail to deliver
• Which moneys follow the World Index Ranking strategies? Of particular importance for a Sell signal, if you select a "Long and Short" strategy, is to decide what to short in advance

Select your specific investment vehicles.
With the many new investment choices which have appeared recently and the broadening of scope offered by the World Index Ranking service, a comprehensive review of the updated "What to trade?" section of the "Resources" page is well worth it.

• First decide what type of investment vehicles you want to use, ETFs, mutual funds and/or options. For example, the availability of new short and leveraged ETFs are making mutual funds and even options less attractive for many investors
• Select which assortment of indexes you will exploit for diversification and then pinpoint which securities to buy, exchange, sell or sell short. You should have every action written down together with the specific ticker symbols and estimated quantities, for every one of your accounts

Be mentally prepared to do it!
Last but not least, you need to pre-condition yourself to pull the trigger unconditionally. We know how hard it can be to trust a mechanical black box system, especially if you suffered through losing trades as we have earlier this summer. Still, the only way to successfully implement a trend following wealth building program is by not letting your emotions get in the way. No second-guessing, hesitation or cold feet allowed. Always remember that the alternative is to ride the market all the way down with buy and hold, as many unfortunate investors have done during the 2000-2002 years. And if you honestly do not feel confident enough to do it unquestionably, you should consider getting help such as from the professionals at MARKETTREND Advisors who specialize in implementing the TimingCube strategies for their clients.

FAQ of the Week

Question: What is wrong with Indian funds?

As the high flying Indian stock market has been correcting somewhat over the last couple of weeks, investors in Indian funds (IFN or IIF ) have started noticing some odd patterns. Specifically, they are worried that of late the funds have been lagging the India index .
Chart 1 below depicts the substantial performance differences, both positive and negative, that can exist between the index and the funds. It is worth mentioning that despite the recent pullback, IFN and IIN are still up 15% and 17% respectively since September 15.

Chart 1: Performance comparison of India index and funds


The World Index Ranking service, as its name indicates, is based on the momentum of indexes, not ETFs. We frequently enumerate the risks of investing in international funds that can include country or regional economic/natural/political issues impacting local stock markets, poor correlation with world markets and/or TimingCube signal, high volatility, low liquidity, currency fluctuations, and divergence between country indexes and country funds. In the case of India, the rise and fall in the U.S. Dollar to Indian Rupee exchange rate has certainly played a role this year with swings of up to 6%. Still, the main culprit of the index/funds divergence is the fact that the only available ETFs are of the closed-end variety.

We have written about the quirks of closed-end ETFs before, but there are a couple of issues in particular that can accentuate the divergence with the country index: they are actively managed (i.e. they do not track an index) and the price premium/discount fluctuates. The premium/discount is the difference between a fund's NAV and the share price. The Net Asset Value is the calculated price based on the valuations of the companies which it holds. Since the number of shares of a closed-end fund is fixed, its share price is also affected by market demand. This can be very nice when, as early this year, the premium for IFN surged to almost 35% (see Chart 2 below which plots the 2006 premium/discount for IFN and IIF), or not so nice when that premium evaporates, as it has during the second half of the year.

Chart 2: Premium/discount history of India closed-end ETFs (IFN, IIF)


So what is an investor to do? Shifting from IFN to IIF would, at best, be of temporary help because at other times it has done worse than IFN (and it still is a closed-end fund). The other option is simply not to invest in India until there are index-based investment vehicles for that country. The wait may not be very long, but the solutions may not be perfect either.

PowerShares has filed with the SEC for an India index ETF (PowerShares India Tiger Portfolio). The trouble with this is that it is based on an obscure index, the Halter USX India Index, which is composed of 18 Indian companies traded in the U.S. What's worse, the 4 largest companies in terms of market cap account for 40% of the index, much too concentrated for our taste.

Another alternative in the making could be the Barclays iPath MSCI India Index ETN (yes, that is Exchange Traded Note, not Fund) which will follow the MSCI India Total Return Index which has a more diversified composition of 68 companies.

Warm wishes and until next week.

The TimingCube Staff