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

Market Update

Stocks experienced mixed fortunes this week as both the Nasdaq 100 and Russell 2000 posted solid gains over the 5-day span while the S&P 500 finished modestly lower. With fears over Greece's debt situation receeding Monday, the major indexes moved modestly higher during the first session of the week. Despite a weak opening the next day caused by Alcoa missing its revenue target, stocks managed to finish in the black before zooming higher Wednesday on the back of a strong quarterly report from Intel. The tech giant easily surpassed both its revenue and profit targets, providing a boost to equities, which were also helped by JPMorgan Chase's better-than-expected earnings. The Nasdaq Composite ended the session 1.1% higher as a result and proceeded to gain an additional 0.4% the next day amid mixed economic news, as a disappointing weekly jobless claims number was counterbalanced by stronger-than-expected manufacturing data. News that the SEC is suing Goldman Sachs over its involvement in the subprime crisis triggered a sell-off in financial issues Friday morning, that quickly spilled over to the rest of the market. If all main indexes managed to finish off their lows, the S&P 500 still retreated 1.6% for the day as it comprises many financial companies. Volume was heavy during the session, but it was likely the result of Friday being an options expiration day.

The Russell 2000 (IWM) and Nasdaq 100 (QQQQ) respectively gained 1.72% and 1.02% over the five-day span, while the S&P 500 (SPY) lost 0.16%. All three ETFs remain located above both their 50-day and 200-day exponential moving averages (EMAs).

For its part, our World portfolio underperformed its U.S. counterparts with 1.70% weekly loss. 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

Accumulation and Distribution Indicators

Some time back, we wrote about the RSI (Relative Strength Index) indicator and its possible use for optimizing mid-signal entry points (see weekly update sent on 10/9/2009). In some older Trend Timing School editorials we have introduced several other Technical Analysis (TA) indicators and methods that are valuable in determining the broad market trend, and more importantly changes in the trend. Most of these techniques, such as moving averages, focused primarily on price and how it evolves over time. Today we look at volume as an indicator of acceleration, momentum and money flow, which assists greatly in pointing out trend changes.

Volume reflects the number of shares traded in a particular stock or index, and is a direct manifestation of the money flowing into and out of the stock or index. The theory behind all volume indicators, including accumulations and distributions, is that quite frequently volume precedes major price moves. Volume is also very accurate in showing the buying and selling activity of the big institutions that move the market. There are numerous ways to look at volume, including fancy mathematical formulas and charting techniques, such as the well known and popular Chaikin Accumulation/Distribution Line. As with everything in TimingCube, we like to keep it simple.

But first, we should define the concept of accumulation and distribution in our own plain terminology. An accumulation occurs when the price of a stock or index closes substantially higher AND with noticeably increased volume than the previous day. Conversely, a distribution takes place when the price of a stock or index closes substantially lower AND with noticeably increased volume than the previous day. We say "substantially" and "noticeably" to make sure we discard small variations as meaningless noise. Individual accumulations and distributions are not significant by themselves, but rather when they occur in succession over short periods of time. Alternating accumulations and distributions tend to cancel each other out. As an example, if we have several accumulations over a short period of time, without any interspersed distributions, it is a strong hint that something unusual is afoot. If our current signal at the time is a Buy, we would interpret this as a very positive confirmation of the then prevailing uptrend. If instead we are in Sell condition, a pattern of repeated accumulations would be interpreted as a warning sign which, when used in combination with the other indicators we favor, could point to a change in the broad market trend, and lead to a Buy signal being issued.

Accumulations and distributions, like all Trend Timing essentials, rely heavily on common sense. If the market tells us that for a number of days, more and more investors and institutions are placing increasingly larger size orders at consistently higher or lower prices, one gets a clear reading of the momentum's direction. One should be careful though not to jump to conclusions too quickly. Looking at the weekly graph of the Nasdaq Composite over the past two years, we can identify several accumulation and distribution patterns. Sometimes they clearly announce the next significant market direction change like the distribution that occured in September 2008, just before the beginning of the memorable bear market that we experienced during the Fall of 2008. But like most things in technical analysis, this is not a perfect science. For instance the distributions shown between November 2009 and January 2010 were not followed by any significant market correction, they were simply the mark of consolidation periods in the recent bull rally.

Chart 1: Accumulations and Distributions during the past two years



As with all indicators, volume by itself is insufficient to accurately and consistently determine the trend, but in combination the indicators in our Model can identify most trend reversals with good accuracy.

FAQ of the Week

Question: How much money do I invest for the TimingCube subscription to pay for itself?

We don't like to think in terms of break-even but rather of Return On Investment (ROI), and in our case we venture that a return of at least 5 to 1 would justify the value you get from the service. This comes in addition to all the great knowledge and peace-of-mind!

From this perspective a $3,000 return should more than cover the annual fees of $599.40 (or only $499.95 for the astute ones who are on a yearly subscription plan). While history is no guarantee, a yearly return of 20% should seem realistic compared to our past performance. In order to get a $3,000 return, at 20% you would have to invest at least $15,000 according to the Model. Of course, many TimingCube subscribers achieved even better returns last year, and we sure hope that you are one of them!

Warm wishes and until next week.

The TimingCube Staff