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

Cumulative Returns since First TimingCube Live Signal () as of

Index	Long Only	Long Only with Margin	Long & Short	Long & Short with Margin	Buy & Hold
Nasdaq 100
Russell 2000
S&P 500

Market Update

It has been a trendless week in which the major indices did not move much overall. The exception was the small-cap Russell 2000: it once more closed the week at a new all-time high and is up almost 12% year-to-date. Uncertainty over how far short-term interest rates will go explains in good part the cautious attitude displayed by investors. The Fed is meeting next week to discuss the issue, but it is already a foregone conclusion that it will raise the funds rate for the 15^th consecutive time to 4.75%. The question is: how many more rate hikes after that? The Thursday release of stronger-than-expected Existing Homes Sales data rekindled fears that the Fed is not quite done yet. However, Friday's New Homes Sales data came in softer-than-expected and provided renewed optimism in both the bond and stock markets. Such conflicting reports send mixed signals about the shape of the economy and help explain why investors have been cautious of late.

For the week, both the Nasdaq 100 and S&P 500 posted a small loss of about 0.3%. As mentioned before, the Russell 2000 did better, with a 1.04% gain. All three indices are still resting above both their respective 50-day and 200-day exponential moving averages (EMAs). There is no change for us and our active Buy signal remains in effect.

Trend Timing School

Long and Short strategies with mutual funds

After writing about how the leveraged bull/bear mutual funds work a couple of weeks ago, it dawned on us that many of our more recent subscribers may not know what bull/bear index funds are and what crucial role they can play in Trend Timing. Being so immersed in the topic for so long we simply started assuming everyone knows, and we apologize for it. Today we will endeavor to correct this major gap in the Trend Timing School curriculum and review how these key investment vehicles can be used to implement the TimingCube strategies.

There has been a lot of talk and hype around ETFs during the last couple of years, but because of their simplicity and convenience many investors still prefer using mutual funds. Also, qualified retirement accounts being not allowed to sell short or trade on margin, mutual funds frequently are the only viable investment choices to implement "Long and Short" strategies, with or without margin (Note that some brokerage firms allow option trading in retirement accounts as yet another investment alternative). We are not talking about just any mutual fund here; to serve our 4 strategies ("Long Only", "Long Only with Margin", "Long and Short", "Long and Short with Margin") we require a fund family with a full selection of match/inverse fund pairs, leveraged or not, for several major market indices. We call such funds bull/bear index mutual funds. And as of this writing there are two such fund families in existence ProFunds and Rydex. Table 1 below lists the complete set of funds available for the three major U.S. indices.

Table 1: Investing with index mutual funds

Investing with index mutual funds
Daily Objective	Nasdaq 100	Russell 2000	S&P 500
Match	OTPIX or RYOCX	SLPIX or RYMKX*	BLPIX or RYNVX*
Double	UOPIX or RYVYX	UAPIX	ULPIX or RYTNX
Inverse	SOPIX or RYAIX	SHPIX or RYSHX	BRPIX or RYURX
Double Inverse	USPIX or RYVNX	UCPIX	URPIX or RYTPX

* This fund matches 150% of the corresponding market index.

Before going too far, let us run through the terminology.

• "Match" is the daily objective of a bull mutual fund that seeks to achieve 100% of the performance of the tracked index. Buying such a fund is equivalent to being long (buying) the index. On a day the index moves up 1%, such a fund will seek to increase by 1%. On a day the index moves down 1%, such a fund will seek to decrease by 1% (all before fees and expenses)
• "Inverse" is the daily objective of a bear mutual fund that seeks the daily performance of increasing in value when the tracked index declines, and decreasing in value when the index rises. Buying such a fund is equivalent to being short (selling short) the index. On a day the index moves up 1%, such a fund should decrease by 1%. On a day the index moves down 1%, such a fund should increase by 1%
• "Double" is the daily objective of a bull mutual fund that seeks to achieve 200% of the daily performance of the tracked index. Buying such a fund is equivalent to being long (buying) the index on full margin. On a day the index moves up 1%, such a fund will seek to increase by 2%. On a day the index moves down 1%, such a fund will seek to decrease by 2%
• "Double Inverse" is the daily objective of a bear mutual fund that uses 2x leverage to seek the daily performance of increasing in value when the tracked index declines, and decreasing in value when the index rises. Buying such a fund is equivalent to being short (selling short) the index on full margin. On a day the index moves up 1%, such a fund should decrease by 2%. On a day the index moves down 1%, such a fund should increase by 2%

The beauty of these mutual funds is that you do not need to learn what "selling short" or "trading on margin" means, but if you really insist on refreshing your memory we recommend reading Short selling explained and Margin trading explained.

In order to trade with these funds all it takes is:

• Select a fund family (it is critical to stay within a family for the ability to exchange between funds)
• Select the index
• Select a daily objective (leverage or none)
• Simply follow the Buy and Sell signals by exchanging between your selected funds

Detailed steps for trading the 4 strategies with the mutual funds can be found in the "Implementing the strategies" table in the "What to trade" section of the "Resources" page, but the most important item to remember is to always use exchange orders which get executed as one single transaction, instead of selling one fund and buying another which would span two consecutive trading days.

Alas, such convenient fund families only exist for the three major U.S. market indices, with the rare exceptions such as UltraJapan ProFund which provides leveraged (200%) exposure to the large-cap, Japan-based Nikkei 225 Stock Average. An inverse counterpart would nicely complete the pair, if there was one.

FAQ of the Week

Question: Is the TimingCube subscription fee tax deductible?

The short answer, if your miscellaneous itemized deductions exceed 2% of your adjusted gross income (AGI), is yes. The TimingCube subscription fees you paid during the tax year (2005 in this case) can be deducted as an investment expense, just as tax preparation fees can be itemized as well. The trick is to reach the 2% floor for any of the deductions to count. Many believe that such fees can simply be deducted from stock market gains but this is not the case. Unlike commissions and other fees related to individual transactions, the subscription to a financial newsletter or to the Wall Street Journal cannot be allocated to a particular transaction, and therefore must be handled as miscellaneous itemized deductions.

We are not Certified Public Accountants and to be on the safe side you should get your individual tax related issues reviewed by a professional tax advisor.

Warm wishes and until next week.

The TimingCube Staff