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

Market Update

Despite a brief pullback Monday, stocks marched higher again this week on heavy volume, triggering a new Buy signal after the close of trading Thursday.
News that General Motors' Chief Executive Rick Wagoner was forced to resign over the week-end put stocks under pressure Monday, resulting in a 3.5% daily loss for the S&P 500 . The main indexes reversed course during the next session and managed to close in the green despite late-day weakness that eliminated most of strong earlier intraday gains. Stocks opened lower Wednesday, but quickly turned around to close with solid gains. The reversal was triggered by a better-than-expected ISM manufacturing index and news that pending home sales increased 2.1% in March instead of declining as most analysts had projected. On Thursday, the Financial Accounting Standards Board decided to relax fair-value accounting rules, a move that directly benefits troubled financial institutions. This was welcome news to investors, who also learned that factory orders rose 1.8% in February, more than expected. Optimism surrounding the G-20 meeting of world leaders in London also provided a boost. The combination of good news helped he market surge on heavy trade, with the Nasdaq Composite jumping 3.3%. The Labor Department announced Friday that 663,000 jobs were lost last month and that the unemployment rate jumped to 8.5%. Just weeks ago, such bad news would have resulted in huge losses for the market, but it proved not to be the case this time around, as stocks instead tacked on more gains, sending the Dow Jones Industrial Average above the 8.000 mark for the first time in two months.

The S&P 500 (SPY), Nasdaq 100 (QQQQ) and Russell 2000 (IWM) respectively gained 3.25%, 4.96% and 6.39% on the week. All 3 ETFs are located above their 50-day exponential moving average (EMA) but remain below their 200-day EMA.

For its part, our World portfolio posted a 5.00% gain this week. The portfolio consists of the 5 top-ranked world ETFs as of March 27, which marked the beginning of the current 4-week holding period.

We now have a Buy signal in effect.

Trend Timing School

Starting and rebalancing a World portfolio

Now that we have a new Buy signal in effect, many subscribers will want to take advantage of the best performing world markets. To do so, our World ETF Ranking is here to help. At first glance, starting and rebalancing a World portfolio appears to be the simplest thing in the world but then, if you start to poke, a lot of questions arise as to the exact best way to do it. Since the failure to see the benefits of periodic rebalancing and uncertainty about the proper procedures to follow can lead to confusion and inaction, we are dedicating this issue to the ins and outs of rebalancing.

In personal finance the term rebalancing is frequently used in conjunction with asset allocation strategies in which you attempt to keep your money distributed between asset types such as bonds, equities and Treasuries in fixed proportion. The common definition is the process of buying and selling portions of your portfolio in order to set the weight of each asset class back to its original allocation. In our case, in addition to managing the 20% position allocations (in the case of our favored 5 position portfolio), we also use rebalancing to periodically upgrade our portfolio to the latest ranking and the strongest markets.

Rebalancing imparts to the World ETF Ranking system its trend following dynamics. The ranking, driven by our relative strength model, reflects the evolving momentum of the various world ETFs. Rebalancing also serves as a way to take the gains from the winners off the table (sell high) and use these gains to purchase underweighted positions (buy low).

For a complete tour of rebalancing and all its intricacies we will examine the following variables, in no particular order:

How many positions in our World portfolio?
For our purposes, 5 positions offer a good tradeoff between sufficient diversification and diminishing returns because indexes ranked 6^th through 10^th are not as strong as the Top 5. We begin with 5 equal-sized, un-leveraged positions in the Top 5 world ETFs.

When and how frequently is the World ETF Ranking updated?
The World ETF Ranking Model is run at the end of each trading week on Fridays, and the updated list is posted on the Web site by 9:00 pm ET.

How frequently do we rebalance our World portfolio?
Our research and testing has shown that the optimum rebalancing period is 4 weeks: it provides excellent returns while minimizing trading commissions. Rebalancing more frequently, say every week, increases churn and trading costs but does not improve performance. We update the rankings every week so that subscribers can start at any time on their own 4-week rebalancing schedule.

How do we rebalance to the latest ranking?
By selling the ETFs which have slipped out of the Top 5 and buying the new ones. Since our system has a low turnover, there are frequently only one or two positions to rebalance. For the results we publish, we always use equal position sizes at the beginning of every period, but this is not necessary for your trading. It is OK for the various positions to grow/shrink at different rates and only when one gets too far out of line do you need to rebalance position sizes.

When and how do we rebalance position sizes?
A good rule of thumb is to rebalance when, instead of the nominal 20%, one position shrinks to represent 15% or less, or grows to account for 25% or more of the entire portfolio. Simply sell the excess shares in the oversized position(s) and buy into the under-weighted one(s).

How is rebalancing different in Long Only and Long and Short strategies?
The rebalancing process is not changed as much as it is interrupted by Cash and Sell signals (except for the Buy and Rebalance strategy which ignores the signals altogether). The 5 positions get sold and either stay in cash or are applied to the short position. When a Buy signal resumes, as it is the case now, the 5 positions get reinstated with the then current Top 5 ETFs.

In short, rebalancing is critical for performance by staying positioned in the strongest markets, and for risk management by maintaining effective diversification. Once we get past all the questions and parameters, all we need to remember is to rebalance to the Top 5 ETFs every 4 weeks.

FAQ of the Week

Question: Is there a way to get historical rankings?

We frequently get this question from curious subscribers wanting to know past positions for the World ETF Ranking. This information can be found at the bottom of our "Results" page. Right below the "Yearly Returns" section, click the "Historical Rankings" button for all the rankings of every period back to 12/15/2000.

The table does not list the actual trades, but it lists the Top 5 positions (and all the other ones as well) for every 4 week rebalance period. It lets you reconstruct the results of our sample portfolio. Some like to "cut and paste" this information into a spreadsheet to analyze. Daily and weekly historical price data can be obtained from Yahoo! Finance (it is their ticker symbols we use to designate the ETFs), or any other data provider. Others like to study which ETFs led the pack at what times, how frequently and for how long. Yet others like to identify the weak markets at the bottom of the rankings, or the ones making large moves, up or down, from week to week. All the information is there for you to analyze.

Warm wishes and until next week.

The TimingCube Staff