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

Market Update

Stocks continued their march higher this holiday-shortened week. The main indexes marked a pause Monday. After profit taking following last week's big rise caused an initial drop, they managed to right themselves to close the day with only modest losses. A more severe fall occurred Tuesday, resulting in a 2.8% daily loss for the Nasdaq Composite. Yet, the move down came on lower volume, showing that large institutional investors were not dumping shares. Stocks recovered Wednesday, helped by strong earnings reports from retailers Jos. A. Bank Clothiers and Family Dollar. Investors decided to ignore the fact that the minutes from the last Fed meeting revealed that the Central Bank had lowered its GDP projections for 2009 and 2010. The S&P 500 added 1.2% on the day. Stocks were in for more gains Thursday after Wells Fargo preannounced that it expects to earn $0.55 per share for the quarter, more than twice what analysts were expecting. The news caused the company shares to jump a staggering 32% and triggered a huge rally among banks and financial stocks, which in turn resulted in broad-based buying across all indexes. By day's end, the Nasdaq Composite had surged 3.9% on heavy trade.

The Nasdaq 100 (QQQQ), S&P 500 (SPY) and Russell 2000 (IWM) respectively gained 1.82%, 1.84% and 2.21% 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 1.22% 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.

Our current Buy signal remains in effect.

Trend Timing School

The market always looks ahead

As Trend Timers this is a time to be excited about because the market has served-up the opportunity of a meaningful move. Even after the seemingly endless wait in Cash we are grateful for having kept our powder dry during the worst of the storm to now be in a position to be fully invested again.

For those of us who, for various reasons, have not pulled the trigger yet, we hope this article will provide a glimpse of the wisdom of following the market, but also why up is currently the path of least resistance. And after that, if you wonder if it is too late and too risky to jump in now, we have the perfect recipe to reduce your entry risk and remove emotion from the process (see FAQ of the Week below.)

When many on Wall Street and in the media endlessly sift through mountains of data about the state of the economy and its various sectors in search of answers to their investment related questions, they have it all backward. It is in fact the stock market that is a leading indicator of the economy, not the other way around. Just as the stock market always peaks well before the onset of a recession, it never fails to bottom right in the thick of the recession, when things could not look worse.

Sadly, just as there are no hard and fast rules about the duration of economic and market cycles, there is no set schedule for when the market bottom occurs after the start of a recession. Statisticians tell us that on average the stock market starts rising from the lows about 6 months after the beginning of a recession, but we are well past that milestone this time, proving that the averages can be made of wide ranging numbers. This does not help investors in search of a reliable bottom forecast.

Economists clearly appear to have the best bargain because it is widely accepted that a recession generally ends about 6 months after the stock market has bottomed.

Near market bottoms investors seem to be all consumed by the current news and problems, pessimism reigns and very few can see the end of the tunnel, much less any light. On the other hand the stock market discounts all the doom and gloom of the past and present. Instead it focuses predominantly on the future where it inevitably finds the first signs for hope and optimism.

We could go into all the early signs showing that the economy is bottoming, starting with a stabilization of the housing market, but we are not trying to form an opinion about what the market should do, but rather observe and follow what the market does. Who is the market? Clearly someone has been buying stocks, and they are not listening to the financial media. Don't ask us why, but the big money, the institutionals have started accumulating equities over the last few weeks. The so-called smart money makes the market, and for now it is buying.

Yes, we well remember our self imposed rule of never making market predictions. What we know right now is that our Model has issued a Buy signal based on what the stock market has been doing. The market signaled that it has begun a significant uptrend, and that is good enough for us. For now the market sees an economic recovery beginning in six to nine months, and that's bullish. Above average volatility levels are the norm and we may experience rapid pullbacks, but for now the new uptrend remains intact.

How long it will last we don't know. Instead of the start of a new bull market this could indeed turn out to be a short-lived bear market rally which rapidly fizzles and reverts to lower lows. Luckily we have several types of downside protection built-in. The first one is the directional Model itself. If the market reverses, the new down trend will be detected. In addition we have the stop loss rule of a 9% decline from entry which triggers a Cash signal.

That the early March low has been a significant intermediate low is already clear. The question everyone wants answered is "was the early March low THE low of the bear market?" We don't know and we don't really care because we follow the intermediate trends while they last. Not all signals result in significant gains, but the only signals we benefit from are the ones in which we participate.

If you haven't yet, we urge you to participate in the new Buy signal. It is not too late and it is less risky than doing nothing.

FAQ of the Week

Question: How can I reduce my entry risk?

After the extreme stock market conditions we have experienced for the last eighteen months or so, it would not be unusual for someone to feel apprehensive about plunging back into the market. Yes, in case you did not notice, our latest Buy signal is a little over one week old. Long time Trend Timers know it is best to follow the signals without delay, but some of us are caught indecisive, frozen in a debate of "Is too late?", "Is this a bear market rally?", "Should I /shouldn't I?", "Why not wait and see?"

Well, if you have not pulled the trigger by now, there is only one way to enter the market in a decisive way, but one which also mitigates the risks of market reversal. The technique is called dollar cost averaging. Instead of committing all your funds at once, you will invest them in a number of successive weekly investments of equal value (5 is a good number). Why is this better you may ask. If the market rally fails in the next few weeks, you will have reduced your market exposure as compared to a lump sum investment. If, for a few weeks, the market retreats before continuing higher, your average cost will be reduced and your ultimate gains will be improved. The only scenario in which dollar cost averaging is not the optimal solution is if the market goes straight up from here. But even in this scenario we will be much better off than if we had remained hesitant on the side line. For a detailed explanation, please read "Dollar Cost Averaging explained".

Warm wishes and until next week.

The TimingCube Staff