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

Market Update

The stock market moved higher day after day during this shorten trading week, but it did it on light volume. On Tuesday, the bulls quickly took control following an upbeat sentiment from the European markets. Good economic indicators followed on Wednesday with reports showing that industrial production grew more than expected, as well as new house constructions that beat analysts' projections. Despite an unexpected increase in jobless claims and a Producer Price Index coming up higher than expected, equities remained bullish on Thursday thanks to the release of some indicators like the Philadelphia Fed's Business Activity Index coming out above analysts' expectations. After the close on Thursday the Fed caught everybody by surprise as they announced a 25 basis point increase to its discount rate. Friday's market reaction was quite negative at first but quickly reversed its course pushing the indexes marginally higher for the day. However, transaction volumes were surprisingly low for this option expiration day. Despite the recent hike in the market, the action was not sufficient for our model to issue a new signal.

The Russell 2000 (IWM), Nasdaq 100 (QQQQ) and S&P 500 (SPY) respectively gained 3.34%, 2.45% and 2.87% over the four-day span. All three ETFs are now located above their 50-day exponential moving average (EMA) and above their 200-day EMA.

For its part, our World portfolio outperformed its U.S. counterparts this week with a gain of 3.37%. The portfolio consists of the 5 top-ranked world ETFs as of January 29, which marked the beginning of the current 4-week holding period. 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.

Our current Cash signal remains in effect.

Trend Timing School

Realistic expectations

We have written about the value of setting realistic expectations before (see "Dealing with risk" Trend Timing School article from September 18, 2009). This time we want to elaborate instead on what you can realistically expect from the Trend Timing system and, more importantly, what you can do to optimize your investment returns.

As our long time subscribers know full well, we like truth in advertising, and all the results we publish are as accurate, clear, complete, and simple as we know how to make them. With the exception of the last twenty trading days which are only accessible by current subscribers (there is no reason to divulge the current signal to the general public ), all the performance information is fully disclosed on the "Results" page. Every signal is listed, be it live or backtested, and since we only use publicly available data such as historical data for standard market ETFs, anyone can verify and reconstruct every bit of performance data we publish. The numbers have been checked and re-checked thousands of times and no one has ever found an error.

Yet, when people ask us if they can realistically expect to achieve such returns year-in, year-out, the answer is an unconditional no. It is wiser, and emotionally healthier, to view these ten plus years of historical returns as a maximum goal to strive for, not as a given or a minimum performance level the markets owe us. The markets do not owe us anything and we should be grateful for what they give.

There are many reasons as to why such lofty results are unlikely to be duplicated consistently by investors in the future. Although we now publish our results based on the market ETFs we recommend (and not their corresponding indices like we did at some point in the past), some potential distortions still remain. The most obvious discrepancy comes from the fact that our numbers do not take into account the various costs, fees, and taxes that an investor might incur while implementing the strategies. There are such diverse individual circumstances that attempting to factor in all these variables inevitably confuses the picture excessively. Secondly, when acting on a signal, we compute our results using the market open price of the day following the triggering of a new Buy, Sell or Cash order, when in reality one would get a slightly different execution price.

As they say in the financial industry: "Past performance is no guarantee of future results". The last twenty years have given us one of the longest bull markets in investor memory but we all have in mind of course the financial debacle of 2008, as well as the collapse of the biggest technical bubbles in stock market history (The Nasdaq Composite fell 77% in 2000-2002, and 56% in 2007-2009). Such exceptional times were accompanied by wild price swings and high volatility which our trend following system thrives on. As we go through periods with market movements of lesser amplitude, our results can also be expected to be somewhat more subdued.

The "Objects in the rearview mirror appear larger than they are" maxim frequently applies to investment results as well because of the effects of compounding. All of our results assume gains are fully reinvested, and over longer periods of time the returns on reinvested gains tend to dwarf those on the original assets. Alas, we are not all in a position, or of a mental disposition, to leave our assets to grow untouched, and as we dip into our savings and withdraw some of the gains along the way, we can also expect our realized returns to decrease accordingly.

Last but not least is arguably the biggest single culprit in missed expectations and lower actual returns: second-guessing. Just as market tops always occur when everyone is convinced the rise will continue, our signals most frequently are triggered at a time when our emotions tell us otherwise. We have countless anecdotes of subscribers who over the years have told us that they did not follow a signal because they thought it was wrong, too early or too late. Failing to fully act on a signal in a timely manner (i.e. immediately and unconditionally) can undermine investment performance more than any other factor. Whether we delay for a few days to think about it, or that we only invest a fraction of our assets because we doubt the signal is accurate, the results suffer.

If you are serious about your wealth building program and have made the commitment to Trend Timing you owe it to yourself to give it a chance to return its full potential, even if that potential is somewhat less than published historical returns.

FAQ of the Week

Question: Where can I find the TimingCube ticker tool?

Some of you might wonder: what are the superscript links that appear next to market indices or market ETFs (e.g.: S&P 500) in our weekly updates or anywhere else on the website for that matter? These links bring up our sophisticated ticker tool showing how the TimingCube model would have performed when applied to that index or ETF.

We show these links every time we mention one of our key market index (Nasdaq 100, S&P 500 or Russell 2000) or one of their corresponding ETF (QQQQ, SPY, and IWM).

But if you are interested in another index, stock or ETF, you can activate the same tool using the "Performance with individual security" function at the bottom of the "Results" page. Simply enter your ticker symbol and click on the button "Go". As an obvious remark, remember to not use this tool with inverse ETFs or funds, since they move opposite to the market!

Warm wishes and until next week.

The TimingCube Staff