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

Market Update

After three consecutive weeks of selling, stocks rebounded strongly over the five-day span, despite another drop on Monday. The main indexes initially rose during the week's first session but eventually turned lower, causing the Nasdaq Composite to drop another 2 percent, therefore continuing the negative trend of late. The picture completely changed Tuesday, after Citigroup said that it was profitable the first two months of the year. The news triggered a huge rebound for the battered financial sector, which in turn sent all the major averages soaring on heavy volume. The S&P 500 vaulted 6.4% on the day, marking its biggest gain since late November. After a quiet session Wednesday, during which stocks managed to retain the previous day's gains, the main indexes posted another strong advance Thursday after Bank of America also announced that it made money during the first two months of 2009. The resulting rally in financials spilled over to the rest of the market, helping the S&P 500 gain another 4.1%. Stocks showed resolve Friday as they managed to climb for the fourth consecutive session despite initial profit taking attempts. Please note that with this week's strong showing, the major averages are now back above their 2008 lows.

The Nasdaq 100 (QQQQ), S&P 500 (SPY) and Russell 2000 (IWM) respectively gained 9.28%, 10.40% and 11.85% on the week. All 3 ETFs remain located below both their 50-day and 200-day exponential moving averages (EMAs).

For its part, our World portfolio posted a 4.71% gain this week. The portfolio consists of the 5 top-ranked world ETFs as of February 27, 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.

It is too early to tell whether or not the rally will last, as part of this week's action was the result of short covering. In the meantime, our current Cash signal remains in effect.

Trend Timing School

Looking for relief

The stock market has been downright woeful for weeks, months it seems, well over a year in fact, and the downward momentum has done nothing but accelerate. Except for this week of course, but one week in row does not make a trend. Stock investors are desperate for relief, the ones still holding on for dear life to their ruined long positions anyway. Even we, the lucky ones who are sitting in the safety of cash, are running out of patience and want an opportunity to make some money, or make some of the money back as the case may be. A good old relief rally is what everyone wants right now and, conveniently if not very reliably, there is no dearth of pundits out there to proclaim that it has arrived. The sad truth is that most of them have been calling a bottom repeatedly for months and have lost vast sums of money for their trusting followers. Cash may be boring, but it beats the recurring whipsaws inflicted by many timing gurus.

We need to remember that since the year 2000 we have been in a secular bear market and that since the fall of 2007, and until proven otherwise, we are in the worst cyclical bear market in a century. With such a combination the odds do not favor bold bullish moves. The reason many call bottom picking a sucker's game is that when finally a bear market rally (aka sucker's rally) does take place it tends to be short lived.

Instead of attempting to decide what the market should be doing we always prefer looking at what the market actually does. We plotted the depths reached by the bear market as seen through the Dow Jones Industrial Average, in red in Chart 1 below. Because some people can better visualize ballistic trajectories as moon shots, going up, we have added DXD in green, the UltraShort Dow 30 ProShares ETF which strives to achieve twice the inverse performance of the Dow. A runaway curve if we ever saw one.

Chart 1: Ballistic markets and overbought/oversold indicators



The red and green arrows are rapidly and asymptotically approaching the vertical. Knowing that no market ever goes straight up or straight down makes us hopeful for a rebound rally of some sort sooner rather than later, but popular wisdom warns against trying to catch a falling knife. Still, the world is unlikely to end and the stock market is unlikely to go to zero in the next few weeks.

We are not trying to pick a bottom but by sheer accident, by writing this, we might be just as prophetic as we were when we last wrote about not trying to pick market bottoms (in our July 28, 2006 Weekly Update), within days of an important intermediate bottom from which the Nasdaq Composite rallied over 35%.

We will also not repeat here the argument some are making in the financial press about markets being undervalued at these beaten down levels because we all know that fundamentals make for poor timing indicators. We are more intrigued by the technicians who look at mechanical indicators such as overbought/oversold market conditions in the market. Technical analysis has developed an array of oscillators to spot extreme situations which could signal key turning points. The most popular are the so-called banded-oscillators which fluctuate between two extremes, typically 0 and 100, and have defined bands indicating overbought and oversold conditions. Two such indicators are the Relative Strength Index (RSI) and the Stochastic Oscillator. With RSI, anything above 70 is overbought, and anything below 30 is oversold. For the Stochastics the bands are usually set at 80 and 20.

Referring to Chart 1 again, we see the RSI and Stochastics drawn under the Dow price graph. Since about mid-February, when the Dow Jones Industrial dropped below the 7,000 mark, the two indicators have dipped into their respective oversold ranges which many will interpret as buy signals. Trouble is that the same oversold levels and buy signals were reached in October 2008 when the Dow still traded above 8,500, and in June/July 2008 with the Dow above 11,000, to mention just the most recent instances.

We are not saying this is not a bottom, or the bottom, because it could well be. We don't know yet and neither does anyone else. We are after intermediate trend changes, not bottoms leading to more bottoms.

For us Trend Timers relief simply means getting a tradable signal, any signal to get us back on our wealth-building track. Certainly, we could use a strong bear market rally that our model picks up with a highly profitable Buy signal, but we are not going to wish it so hard as to predict it. A market bottom can never be recognized at the lowest point, because a bottom is defined by the rebound that follows. As soon as our model detects that a new trend has actually been established, a signal will be issued. Until then we remain patient and safe.

FAQ of the Week

Question: What of applying TimingCube signals to TradeGuru stocks?

After reading last week's Trend Timing School article in which we highlight our sister service TradeGuru as a good example of a strategy purely driven by fundamental analysis, a number of subscribers came to wonder if overlaying the TimingCube signals could not benefit that stock picking strategy.

Unlike TimingCube, TradeGuru is designed to stay fully invested in stocks at all times. The strategy works well in most markets, even sometimes during bear markets as it did during 2002 when TradeGuru portfolios beat the market with great returns (+23% and +58% versus -25% for the S&P 500). Even though timing TradeGuru with TimingCube signals would have worked well during the second half of last year, there are others times when it substantially reduces performance, as is the case during explosive rallies off intermediate market bottoms.

We view the two strategies as being so different that they are truly complementary to each other. Because of this we like to keep the two services separate and manage risk through strategy diversification, i.e. they are better separate than combined.

Warm wishes and until next week.

The TimingCube Staff