Signal Type	Trade Date	Return since issued
		World	U.S.
			Nasdaq 100 (QQQQ) Russell 2000 (IWM) S&P 500 (SPY)

Market Update

Stocks continued to retreat sharply over the five-day span. This week's sell-off on heavy trade within the context of the long uptrend that started in March of last year caused our Model to issue a Cash signal after the close Thursday. With investors eagerly awaiting the Federal Reserve's decision on interest rates, the market failed to post a rebound and basically remained flat the first two sessions of the week. The Fed announced Wednesday that it was leaving rates unchanged and issued a positive statement on the economy. The news helped overcome early weakness to send stocks in the black, with the S&P 500 finishing the day with a 0.5% gain. That was to be the high point for the week, however, as sellers returned in earnest Thursday to yield the market a heavy blow on increased trade. Investors decided to dump shares following a weak forecast from Qualcomm and disappointing economic news, including a weak durable goods report for December and worse-than-expected weekly jobless claims. By day's end, the Nasdaq composite had lost 1.9% and significantly undercut last week's lows. By then, the continuous degradation of the index's price and volume action caused our Model to trigger a Cash signal after Thursday's close. Stocks looked ready to recoup some of their losses Friday after the Commerce Department said that GDP expanded at an annual rate of 5.7% during the fourth quarter, well above forecasts of 4.5%. The news indeed helped stocks open higher, but sellers again stepped in to drive all major indexes lower, the Nasdaq Composite finishing the day with an additional 1.5% loss. Trading volume again increased, clearly showing that institutional investors are driving the selling.

The S&P 500 (SPY), Russell 2000 (IWM) and Nasdaq 100 (QQQQ) respectively lost 1.67%, 2.62% and 3.10% over the five-day span. All three ETFs are located below their 50-day exponential moving average (EMA) but remain situated above their 200-day EMA.

For its part, our World portfolio underperformed its U.S. counterparts this week with a loss of 3.60%. The portfolio consists of the 5 top-ranked world ETFs as of January 1, which marked the beginning of the current 4-week holding period. The World portfolio is being rebalanced today, as the current 4-week holding period is now over. Please note that since we now have an active Cash signal, the World approach calls for selling your holdings if you follow the "Long Only" or "Long and Short" strategy. Only if you follow the "Buy and Rebalance" strategy should you remain invested in the top 5 ETFs, as the strategy calls for staying invested at all times. Please go to the "Our Service" page for all the details.

We now have a Cash signal in effect.

Trend Timing School

Investor sentiment changes on a dime?

Three months ago we attempted to put a "plunging" U.S. dollar into a broader perspective, showing that the dollar was really not plunging, just returning to its pre-crash normal levels. Perhaps we sensed an oversold dollar because no sooner did we publish that weekly update than the dollar began a strong counter-trend rally that pushed through most of December and has the dollar poised to actually break out - if only briefly.



The dollar has rallied back up to its 200-day moving average, a level that has provided alternating support or resistance over the past decade. If it succeeds in pushing through this key level, however, the ensuing move higher might be rather modest on the upside as a 20-year band of thick prior support should now offer stiff resistance. That resistance was easily taken out in the stock and credit market crash of 2009. But that was a brief move lasting less than six months and requiring a historic market disconnect to propel the flight to safety - not really a trend change of any lasting duration. Barring markets becoming unhinged again, you would not expect a similar action.



Why then the sudden change in dollar sentiment from the dire pronouncements of only one quarter ago? Remember that currencies are a relative game. The U.S. dollar's value is relative to the strength of other currencies, primarily the Euro and Japanese Yen. Though the Yen continues to generally march higher in recent years, the Euro appears to have begun a new downtrend.





The Euro's downturn began as the financial health of Greece has come under scrutiny. Despite a recent successful bond issue by the Greek government, credit markets continue to act as if Greece is financially teetering. As investors fret over Greece, they easily expand their wall of worry to other Eurozone nations - e.g. Portugal, Spain, Ireland, and perhaps even the UK. Such uncertainty over the financial stability of these countries has put pressure on the Euro and made the Yen and U.S. dollar look relatively better.

Recall that commodity prices tend to move in the direction opposite the U.S. dollar trend (all other things equal). Thus, a continuing dollar rally could keep oil prices lower and cause weakness in resource-intensive emerging markets. Indeed, over the period of our most recent Buy signal, you will notice that our World portfolio has trailed domestic indexes. We hold the rising dollar only partially responsible as news of China's intent to slow its growth (how many times have we heard that one!) have also pressured international stocks over recent weeks. Absent any new news to change these trends, we might continue to see U.S. markets do relatively better than international indexes. But our charts above suggest this move higher in the U.S. dollar should run into a stiff wind before much longer.

FAQ of the Week

Question: Are daily or weekly charts more important in determining the trend?

We suppose this is one of those questions where the answer could be simply "yes". They are both important because they can tell a somewhat different story. Take a look below at the recent daily chart of the Nasdaq Composite index. It has cascaded down through its 50-day moving average and appears to be threatening a sharper move lower if it cannot hold 2200.



However, a weekly chart of the same index puts the recent weakness into a broader perspective, showing that the months-long uptrend is still well intact. Perhaps the message is: when the daily market action causes a bit of indigestion, take a deep breath, step back, and widen your view. You might find the ride is a whole lot smoother.



Warm wishes and until next week.

The TimingCube Staff