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Turbo Model



Current Signal Performance

Turbo Signal
Trade Date
Turbo Model Returns (Long & Short Strategy)
 
Nasdaq 100
(QQQ)
Russell 2000
(IWM)
S&P 500
(SPY)
  Classic Signal  
Trade Date
Classic Model Returns (Long & Short Strategy)
World
Nasdaq 100
(QQQ)
Russell 2000
(IWM)
S&P 500
(SPY)


Market Update
Investors entered the holiday-shortened week with the long-awaited agreement among European leaders for the next round of Greek working capital. Offsetting this presumed market benefit was a move by Iran to halt oil shipments to Britain and France. Neither of these nations receives much oil from Iran. But the move combined with a stronger Euro/weaker dollar to push oil and other commodity prices sharply higher. Stock indexes were little changed on the day. Wednesday saw further sideways trading and consolidation of recent gains with indexes down less than -0.5% for the day. Those modest losses were recouped Thursday when investors viewed another rise in oil prices and drop in jobless claims as market positives. Small caps far outbid their large-cap brethren posting a +1.5% rise to recoup the prior three day pullback. Friday provided another mixed and narrow trading day with improved consumer confidence offering bullish support, though not quite enough to drive stocks past current resistance points.

An eighth consecutive winning week for the Nasdaq 100 (QQQ) added +0.84% to the indexes gains for the year. The S&P 500 (SPY) found support intraweek at 1350 and held on to a +0.38% lift. The Russell 2000 (IWM) small-cap index digested the prior week's almost +2% move with a fairly flat -0.18% weekly return.

The fourth week of the current World portfolio cycle rose by +0.34%. This portfolio is comprised of the top 5 members of our World Ranking from the January 27th ranking and will rebalance this weekend.

Both Classic and Turbo Models remain on Buy signals.
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Trend Timing School
Corporate earnings are slowing down

With this latest corporate earnings season winding down, we thought it was interesting to note that corporate earnings have not been all that great. Earnings have recorded the ninth consecutive quarter of growth, obviously a good thing. But the rate of growth has fallen to single-digits for the first time during this recovery period. Estimates for growth in the April reporting period are all the way down to anywhere from 0% to +2-3%. And those estimates have fallen consistently since last fall when they were approaching double-digits. Only 63% of company's have beaten earnings expectations - the lowest "beat" rate in three years. Only 43% have beaten estimates of revenue this quarter - the lowest beat rate in almost two years and second lowest since this recovery began. Thus, we've had an interesting period where expectations for corporate earnings have fallen while the willingness of investors to pay for those earnings has risen.

This reflects the substantial fear prevalent in the market last fall, a period where the belle of the market ball, Apple, traded near a P/E ratio of 10 despite earnings growth many times above that. That fear has been set aside as broader domestic economic measures have rebounded from weak readings last August/September that seemed to presage another swipe at recession. It's clear that the corporate earnings estimates never got really adjusted for this dire view. So, perhaps now earnings estimates are being ratcheted down as top-level economic measures get nudged upward? This meeting of top-down and bottom-up projections might hint at a market that has found some sort of equilibrium, having washed away the prevailing fears of Euro-doom and global recession to return to a more middling but positive economic picture. Indeed, P/E ratios for the market overall have bounced back nearer to "fairly valued" as shown in the Chart 1 below from DecisionPoint:

Chart 1: Rising earnings + a flattish market = "fairly valued" stocks on a P/E basis

Rising earnings + a flattish market = "fairly valued" stocks on a P/E basis

Of course, this analysis begs the question - what happens from here? Figure that earnings growth is currently looking to slow down to near 0% for this quarter before bounding upward by +8% the following quarter. If stocks just maintain from here with the growth in corporate earnings, then we'd look for only very modest upside near-term unless investor enthusiasm finds another gear to pay even higher multiples for flattish earnings.

One of the recent parlor games among analysts has been to "expose" the lack of real market progress/growth if we remove the power of Apple from the data. Taking Apple's earnings out of the equation for the current quarter reporting period would drive earnings growth down to only about +2-3%. Taking the company's strong stock price move out of the equation would similarly dampen things, leaving the Nasdaq 100 well below its prior high and stocks still striving to get to last May's cyclical high point. Note that Apple's heft in the Nasdaq 100 was carved down just nine months ago from near 20% to around 12%. As it surges forward, Apple's % of the Nasdaq 100 has recovered already more half that ground.

We do not have much of a feel for where the market marches near-term from here. Most momentum folks believe a mild correction is needed to digest the run higher and set the stage for further advancement. That seems a likely scenario. But corrections can also be of time rather than price. This marks the third week of tight trading with bulls buying any dip at all but bears selling every push higher. Eventually this stalemate breaks and one side gives way. We would just reiterate that the sharp gains we've seen over the past eight weeks are pretty heady stuff. While not obviously excessive, they do beg for some sort protection against anything unforeseen. Trailing stops are not a bad choice at this juncture, for example.
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FAQ of the Week
Question: How is your new Turbo Model doing?

We understand this question and do receive variations on it regularly. The results speak for the potential of the Model. But Turbo is still young. As with any new relationship, it takes time to gain trust and confidence. We recognize that all investing models are exposed to markets changing and rendering them less potent than before. However, we do believe we have built Turbo to react well to most every situation. Plus, we watch it daily for any signs that it's misbehaving, or acting differently than we would expect. In short, so far, so good. Since its launch in mid-October, Turbo has delivered a couple of very good trades that have given us about a combined +20% return. The handful of other trades have essentially broken even in aggregate. As a result, our confidence is growing in our new Turbo Model. While we know that there will be poor trades along the way, we do expect the trend to be up and to the right, and strongly so.

Warm wishes and until next week.

The TimingCube Staff
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