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 climb over the four-day span, with the S&P 500 finishing this holiday-shortened week at its highest level of the year. The large-cap index gained 0.6% Monday as a sliding dollar and a rebound in oil prices provided a boost to equities. The following trading session turned out to be a quiet one that left the major indexes almost unchanged by day's end, as recurring worries over debt-ridden European nations counterbalanced a better-than-expected reading on consumer confidence and news that home prices are on the rise again in several U.S. cities. Wednesday marked the last trading session of March, in which investors decided to book recent profits on the back of a disappointing Chicago Purchasing Managers' Index (PMI). The major averages consequently retreated on the day, but the losses remained modest as the S&P 500 only dropped 0.3%. Market participants returned to their buying habits Thursday, as the first session of the month saw the S&P 500 gain 0.7% to finish the week at levels not seen since late September 2008. The renewed optimism was fueled by a better-than-expected ISM index of manufacturing activity for March and a decrease in weekly jobless claims. While U.S. markets were closed for the Good Friday holiday, the Labor Department released the March employment report Friday morning. Employers added 162,000 jobs last month, which marked the largest increase in payrolls of the past three years. As for the unemployment rate, it remained steady at 9.7%.

The S&P 500 (SPY), Russell 2000 (IWM) and Nasdaq 100 (QQQQ) respectively gained 1.05%, 0.91% and 0.33% over the four-day span. All three ETFs remain located above both their 50-day and 200-day exponential moving averages (EMAs).

For its part, our World portfolio outperformed its U.S. counterparts this week as it posted a 4.08% gain. The portfolio consists of the 5 top-ranked world ETFs as of March 26, which marked the beginning of the current 4-week holding period.

Our current Buy signal remains in effect.

Trend Timing School

Starting mid-signal with Dollar Cost Averaging

Our mechanical Trend Timing Model gives us clear cut directions to enter the market with Buy signals, and for when to sell short with Sell signals. As highlighted in the questions we receive from our subscribers, it seems like the most difficult aspect of our timing system is to decide when and how to invest between signals. This applies to both new subscribers starting some months after the previous signal was issued, and to the ones that for some reason failed to act when the signal came. Longer-term Trend Timers on the other hand have been in step with the signal for some time and, if so lucky as to be at the receiving end of a tax refund check or a bonus, they would not hesitate to commit new money mid-signal.

When arriving mid-stream, the natural tendency for many is to conclude that, because of the time elapsed since the previous signal, the next one must be near, and therefore we should wait. During a Buy signal we fear that we are near a top, that the market is overvalued, or we rationalize that since the signal has been active for so many months, the probabilities of a Sell signal being near are high. Well, we are sorry to differ, but when - as now - we have a Buy signal during a long uptrend, we know that the predominant market force is bullish, that any weakness is likely to be of a relatively short duration, and small enough so as to not trigger a signal. The most likely next step is for the bull market to resume its upward movement.

We don't know when the next signal will come and, as always, we will let the market and the Model tell us when a trend change occurs. In the mean time we get in step with the current signal because if we don't, not only could we miss substantial profit opportunities, but more importantly, we risk waiting on the side lines so long that we lose patience and fall off the wagon before even trying.

All of this gets us back to the original subject of this editorial: Dollar Cost Averaging. This is a fancy term for a very simple and widely respected method of optimizing the investment entry and minimizing the downside risk. Instead of committing the entire amount we are prepared to invest in one single lump sum, we invest it in a series of smaller fixed dollar amounts over a period of time.

In the example below, a $10,000 sum can be invested upfront as a lump sum, for 1,000 shares at $10 each. Or, with Dollar Cost Averaging, the $10,000 is divided into 5 installments of $2,000 per week, for five weeks. There are three possible scenarios, the market goes nowhere and bounces around, the market goes down, or the market goes straight up. In the first two scenarios you are substantially ahead with Dollar Cost Averaging.

	Dollar Cost Averaging								Initial Lump Sum
						Ending Values after Week 5
	Week 1	Week 2	Week 3	Week 4	Week 5	Total Number of shares	Average cost	Value of investment	Value of investment
Market bounces around
Price	$10.00	$15.00	$10.00	$5.00	$10.00
Shares purchased	200	133	200	400	200	1133	$8.82	$11,330	$10,000
Market goes down
Price	$10.00	$8.50	$7.50	$6.50	$5.00
Shares purchased	200	235	267	308	400	1410	$7.09	$7,050	$5,000
Market goes up
Price	$10.00	$11.50	$12.50	$13.50	$15.00
Shares purchased	200	174	160	148	133	815	$12.26	$12,225	$15,000

Why is Dollar Cost Averaging so effective?

And in the end, if the downside risk still looks too ominous, nothing prevents you from setting your own stops at a tolerable percentage. Make sure you don't set them too tight or you might get stopped out too early. Remember that the Trend Timing philosophy can only help you build long term wealth if you adhere to it.

FAQ of the Week

Question: Is Dollar Cost Averaging also relevant during Sell signals?

The short answer is yes. Dollar Cost Averaging is a method for lowering your risk when entering a new position. We reviewed the dollar cost averaging technique above, but since we currently are on a Buy signal, we only discussed the long scenario. In a short situation the risk management benefits of the technique work just the same.

First of all, if you implement a short strategy by investing in an inverse ETF or a bear mutual fund, since you buy shares of the fund the traditional long reasoning applies, i.e. when the price of the fund's share goes down your fixed dollar purchase buys more shares, and when the price goes up it buys fewer shares.

If on the other hand you implement the Sell signal by short-selling an ETF or stock, the Dollar Cost Averaging behavior is the mirror image of what it is in the long scenario. If the market moves against the Sell signal by going up, your fixed dollar installments will short fewer shares and in the end your losses will be less than what they would have been had you shorted the entire amount up front (because you have fewer shares to buy back when the time comes to cover the short). If instead the market cooperates and goes down you will be shorting more shares. Your potential gain will be somewhat less than if you had shorted the entire amount up front, but for most people this reduced potential gain is well worth what it buys you in protection against larger losses.

In addition, Dollar Cost Averaging safeguards you even more against sharper changes in market trend. If the market moves strongly against the Sell signal while you are dollar cost averaging into the position and a Buy signal is triggered, your losses will be substantially less than if you had shorted the entire amount up front.

Warm wishes and until next week.

The TimingCube Staff