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

Market Update

Stocks were quick to recover from last Friday's weakness as they resumed their climb this week to finish at new highs for the year. With worries over the Goldman Sachs fraud case still lingering Monday, the major indexes managed to recover from early losses to finish the session in positive territory. The turnaround was in part attributed to the release of the March index of leading indicators, as the measure of economic health topped forecasts to show its best monthly increase since May of last year. Stocks continued to advance Tuesday, as optimism returned to the markets following solid quarterly reports. Goldman Sachs beat its earnings target and therefore alleviated some of the recent concerns over the company, helping the S&P 500 post a 1% daily gain. After the close, Apple released better-than-expected quarterly results, but the news failed to lift equities Wednesday as the major averages finished the session little changed. The market clearly showed its resilience the next day: if stocks dropped early in the session on resurfacing fears over Greece's debt problems and disappointing weekly jobless claims data, they managed to stage yet another positive reversal to finish in positive territory, with the Nasdaq Composite gaining 0.6%. Stocks kept climbing Friday after economic data showed a 27% increase in new home sales in March. News that Greece would tap the European bailout program to address its debt issues also helped. The S&P 500 climbed an additional 0.7% on the day, capping another strong week for stocks.

The Russell 2000 (IWM), S&P 500 (SPY) and Nasdaq 100 (QQQQ) respectively gained 3.74%, 2.05% and 2.00% over the five-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 posted a 1.37% gain this week. 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. The World portfolio is being rebalanced today, as the current 4-week holding period is now over.

Our current Buy signal remains in effect.

Trend Timing School

Subtle shifts in the investing landscape

Dow Jones clearing 11,000 and holding? Check. Earnings coming in as well as expected? Check. Market potentially tired after a torrid, nonstop move higher? Probably. Small-cap stocks, mid-caps, real estate, broad financials, consumer discretionary, metals - all have gained 20% or so since the current rally began in early February. And have done so with nary a pause for breath in many cases.

Technical folks like to talk about "divergences". For example, if stocks are moving higher but the number of stocks hitting new highs is shrinking, it suggests that investors are pouring their money into fewer and fewer stocks; that maybe the uptrend is being driven by a select few rather than a broad-based rally. If fewer stocks are participating, we would expect that eventually investors will stop chasing those stocks as well and the rally will stop. We are beginning to see some sectors taking a rest, rolling over, and pondering the quick, sharp gains they have accumulated.

The most notable area of this divergence is in commodity-driven stocks. They were among the first out of the gate when the market finished its correction earlier this year. In part, that strength was a function of strong currency gains as investor sentiment in favor of a global economic recovery gained traction. Chart 1 below shows how stark the contrast between the winners and losers in the currency world over the past couple of months. Note that the "winners" are generally commodity-driven economies, while the weaker currencies have been a grab-bag of slower-growing economies (e.g. Euro) and the traditional safety plays (e.g. Yen). The Chart 2 is the same data but adding in the move in broad commodities - thus, displaying how correlated the moves in the currencies and commodities.

Chart 1: Currency moves since the current rally began (in U.S. dollar terms)



Chart 2: Currency and commodity gains since the current rally began


However, since we turned the corner into April, commodities have pulled back as have related stocks while some U.S. stock indexes continued their march higher (see the chart below).

Chart 3: April stock gains in select indexes and commodity-driven countries



Note that many of these countries (e.g. Canada, Mexico, Russia) were among those with the strongest currency gains. This is divergence. U.S. small-cap and tech stocks have continued their run while investors have stopped supporting commodity-driven stocks. Whether this is a temporary pause while profits are taken and buyers reload, or whether it reflects a deeper shift in investor sentiment, only time will tell. The other question divergences ask is whether one sector is more "ahead" of another. Are the commodity-driven stocks suggesting that the broader market will be rolling over, that investors have overplayed their hand in pushing up these cyclical stocks so quickly? If so, the U.S. small caps and techs should roll over as well.

It should be pointed out that none of this stock action is particularly concerning. Thusfar, all of these indexes and sectors remain above their 50-day moving averages and appear to be just digesting their recent, heady gains (which is consistent with our current Buy signal). There is nothing in the economic data of recent weeks to suggest any slowing in the global economy's recovery. It just appears that investors that have fueled this move higher are a little spent while those still on the sidelines are unwilling to chase shares at this level. Thus, stocks drop back a bit until the new money determines it's a more opportune time to jump in.

Thus, there has been a subtle shift in the investment landscape with commodities and their brethren having weakened in April while U.S. stocks generally power higher. If the good news keeps coming and no monsters come along to scare off the buyers, one would expect this to be a normal pause in the cyclical bull's run. Our Model is scanning the horizon for more significant hurdles and will certainly let us know if it's time to seek cover.

FAQ of the Week

Question: You recently spoke about coming increases in interest rates. But haven't some rates already gone up?

This is an excellent question. Over the past decade investing has become very much a global game. Americans are usually very focused on what is happening in their own backyard, perhaps being less mindful of trends elsewhere. With that in mind, we post the table below showing the current state of interest rates in a long list of countries. These are the official rates pulished by their central banks - their equivalent of our Federal Reserve. We have highlighted those who have made changes thusfar in 2010 with a yellow highlight denoting an increase while a blue highlight shows countries who are still battling a lingering recession and pushing rates lower. The list of countries raising rates is growing as the global economy gains steam, with the more commodity-driven economies like Australia being among the first to react.

Chart 4: Current state of global interest rates



Warm wishes and until next week.

The TimingCube Staff