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

Major indices posted modest declines this holiday-shortened week, amid rising bond yields and higher oil prices. As has been the case since the beginning of the year, investors have to deal with conflicting messages: on one hand, we have a solid economy, which is a positive for corporate America; on the other, rising interest rates and inflation fears are negative for stocks. With market psychology switching so rapidly between optimism and pessimism depending on the news of the day, it is no surprise that we have experienced such stop-and-go action these past few months. Despite the fact that the yield on the 10-year Treasury note surpassed 5% for the first time in 5 years and that oil prices are approaching the $70-a-barrel level, stocks held their own and finished the week on a positive note. Trading volume was light however, as many investors left early to enjoy the Passover and Easter holidays. Market action will resume in earnest next week, as earnings season kicks into full swing.

The Nasdaq 100 and Russell 2000 posted respective losses of 0.64% and 0.66% on the week. Both indices remain above their 50-day and 200-day exponential moving averages (EMAs). As for the S&P 500, it posted a 0.49% loss. It is now resting a hair under its 50-day EMA and is still well above its 200-day EMA. Our Buy signal remains active.

Trend Timing School

Qualitative versus quantitative

A lot of noise has been made lately about quantitative investing, and some eye-opening announcements by the likes of mutual fund giant Vanguard have added fuel to the fire. While nothing new, Vanguard has disclosed an increasing number of deals to outsource the management of portions of their actively managed funds to independent money managers who focus on the quantitative approach.

It is interesting how over a reasonably short period of time the perceptions, and sometimes even the very definition, of some terms can change. Not too long ago, traditional mutual fund teams and money managers utilized fundamental analysis, which generally consisted of a combination of quantitative tools and qualitative assessments, to determine the value of an investment. More recently, "quantitative investing" is being pitched as a new-found gospel in opposition to the subjective and opinionated fundamental analysis. Maybe because it sounds sort of like quantum physics, quantitative investing is surrounding itself in mystery and its practitioners like to be addressed as "quants" or "rocket scientists" in financial circles.

Qualitative analysis uses non quantifiable information about companies to make investment decisions. Factors such as economic and industry cycles, competitive position, product strength, management track record all involve subjective judgment and opinions.

On the other hand, quantitative means nothing more than that something is solely based on numbers and in investing it generally refers to the use of computer models and formulas to drive buy and sell decisions. This is certainly nothing new and it has been going on for over thirty years with the best minds of academia and finance coming together to computerize all possible statistical analysis of company and economic data.

Quantitative analysis is also frequently confused and incorrectly interchanged with technical analysis. While the two are entirely numbers based and can use similar tools and techniques, the goal of the quantitative method is to evaluate a stock by estimating the company's intrinsic value, where technical analysis will focus on finding trends and changes in pattern. While the two overlap greatly, quantitative analysis is heavy on the statistics and technical analysis is heavy on price charting.

We wrote about "The difference between fundamental and technical analysis" and "Fundamental confusion", but the recent hype surrounding quantitative investing has more to do with cost issues in the traditional mutual fund industry. Well over half of all mutual fund money is actively managed, which is surprising considering that index funds routinely outperform actively managed ones. When on top of poor relative performance you look at costs, the picture gets worse. At the low end of the scale, both cost-wise and IQ-wise (it does not take too much brain power to figure out which stocks should be included in an S&P 500 mutual fund), are index funds which are passively managed and have an average fee of 0.18%, high in contrast with large index ETFs which go as low as 0.10%. When you realize that the average fee for actively managed value funds is about 1.4% you know there is a problem in the industry, and why some of the fund companies are actively seeking more competitive alternatives to their traditional money management teams.

Still, to put things in perspective, a recent study in a Vanguard investment newsletter showed that quantitative investing now accounts for only 16 percent of actively managed assets in the U.S., up from 13% percent in 2003. So while the approach is clearly gaining a lot of visibility of late, its actual adoption in the mutual fund industry is still tiny.

In Trend Timing we certainly believe in a 100% mechanical and data driven model. We side with quantitative investing in trying to take emotions out of the investment process and banning any forecasts, guesses or other subjective judgments. Unlike "quants" who look for the value of a company, we focus mostly on the interaction of price and volume of large indices for the tell tale signs of broad market trends.

FAQ of the Week

Question: Can I still make a 2005 IRA contribution?

This year is heaven for tax procrastinators. With the 15th being a Saturday, the IRS has kindly moved the deadline for 2005 tax filing/paying/contributing to Monday April 17, 2006. This means that, provided you use overnight mail, your IRA contributions can still make it in time.

This should also serve as a reminder for the rest of us non-procrastinators that it is always a good time to contribute and maximize tax-deferred investment vehicles, regardless of tax cut-off dates. Just because the deadline is in April 2007 does not mean it is too early to make your 2006 contribution. And it is certainly never too early to begin participating, or increasing your contribution level, to an employer-sponsored tax-deferred retirement plan, including 401(k)s. As they say, contributing to retirement plans is like getting free money from the government, and the earlier you put it to work the more it will grow.

Warm wishes and until next week.

The TimingCube Staff