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

Market Update

Despite a sharp drop Monday, stocks moved higher over the next four days, allowing the Nasdaq Composite to complete its seventh week of gains. The major averages fell hard Monday, as illustrated by the S&P 500's 4.8% daily loss. The fact that Bank of America reported a 41% increase in bad loans during the first quarter and that the Conference Board Leading Economic Index (LEI) fell more than expected last month provided an excuse to take profits following a strong performance by stocks over the past several weeks. The weakness did not last long, however, as the main indexes were able to recoup a good chunk of their losses the next day. The market again rallied for most of Wednesday's session before a last-hour selloff erased most of the gains and even resulted in a 0.9% loss for the S&P 500 by day's end. After the close, both Apple and EBay reported earnings that beat expectations. The news helped stocks move higher Thursday despite a weak start to the session. A better-than-expected report on new-home sales for March combined with positive earnings news from tech bellwethers Microsoft and Amazon to send the major averages markedly higher on heavy trade, the Nasdaq Composite gaining 2.6% on the day. Market participants were also pleased to hear that the series of stress tests the Federal Reserve will conduct at 19 leading banks should not provide any major shock as the Fed acknowledged that most U.S. banks currently have sufficient capital levels,

The Nasdaq 100 (QQQQ) gained 1.14% on the week while the S&P 500 (SPY) and Russell 2000 (IWM) respectively retreated by 0.48% and 0.27%. 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 outperformed its U.S. counterparts this week with a 1.70% gain. 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. Please note that 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

Telling a bear market rally from the first leg of a new bull market

Just as there were plenty of courageous souls willing to call the market bottom on the way down, over and over for most of them, there are plenty of others who now warn about the current rally being unsustainable and about the lower lows that have yet to be made before the bear market is over. Well, you all know how much we loathe predictions, but we will have to side with the one about the unsustainable rally, simply because no market goes straight up and no trend lasts forever. Nobody knows how long the rally can keep on going, but the market always works out overbought/oversold conditions. But we just cannot agree with any claim about this being just a short-lived bear market rally, or for that matter any assertion about this being the start of a new bull market. How could anyone tell the difference?

In broad terms, a bear market rally is a sharp but short-term price increase during a primary bear market trend. Its counterpart, a temporary price decline during a primary bull market trend, is called a market correction. Some market historians further define bear market rallies as increases of between 10% and 20%, the same percentage declines they assess for corrections. With the Nasdaq Composite index now up more than 30% since the March lows, the 10% to 20% bear market rally definition would have us comfortably in a new bull market.

The funny thing is that all new bull markets begin with a bear market rally, and you cannot tell them apart as they occur. No one can tell them apart because it is what happens after the rally which determines what the rise actually was. When the current rally comes to an end, the market can fall dramatically to eventually set new lows in an on-going bear market or, after a short and healthy correction a new bull market up leg can begin.

Looking at Chart 1 below for a view of the current bear market since it began in October 2007, we can readily spot a number of bear market rallies depicted with green/red arrows. During every such rally we hear from the two opposing sides. The bulls are convinced the most recent low was THE low for the bear market and therefore this rally is the beginning of a new bull market. On the other hand, the bears warn it is nothing but another suckers' rally which will not only end soon but inevitably lead to a lower bear market low and more tears for the bulls.

Chart 1: Recent bear market rallies



Digging through the chronicles of technical analysis there are countless esoteric trading recipes to identify a short-term bottom from THE bottom. Indicators such as the climactic volume increase on the day of the bottom, or the hammer candlestick reversal pattern, to name just a couple. The sad truth is that you can find just as many instances when they did not work.

So far in this bear market, as one would expect, the bears have been right but they deserve no credit because in truth they had no way of knowing and were simply lucky. Only the future will tell.

The entire discussion of bear market rally versus new bull market is only necessary, albeit worthless in the end, for buy and hold investors betting on their conviction that this is the beginning of a long bull market. Or likewise for the gamblers trying to convince themselves that their bearish bets will ultimately pay off. Trend Timers could not care less which it will turn out to be, as long as there are strong intermediate trends that are actionable and profitable.

At the risk of repeating ourselves, in our long journey as students of the markets we have yet to find one reliable market prediction technique, and this is why we are staunch supporters of trend following. History shows that markets move in trends most of the time. There is no better guide to
the direction of the market than the market itself. While there will always be news induced short-term fluctuations up or down, markets will tend to form intermediate trends which last from a few weeks to a few months, within the broader context of a longer-term primary trend, such as a bear market.

We are the first to recognize the short comings of trend following, such as not all trends we detect develop into profitable intermediate trends and, that by definition trend following misses all the tops and bottoms because a new trend first has to be established in order to be recognized.

Knowing that we have the proper safeguards in place to deal with the known weaknesses of mechanical trend following by far outweighs the risks of investing based on one's, or someone else's, convictions about the future direction of the market.

FAQ of the Week

Question: Can I mix the U.S. and World strategies?

Absolutely. The TimingCube Model tracks the broad stock market trend which, because of the correlation of world markets, is common to all broad world stock market indexes. The World Strategy simply ranks 32 world markets to identify the ones with the strongest momentum during our Buy signals.

Note that the list of World ETFs includes 8 U.S. ETFs representing slightly different segments of the U.S. stock market, as listed in Table 1 below.

Table 1: U.S. ETFs in the World ETF Ranking

Market	ETF Ticker
Large Cap Dow Jones 30	DIA
Wilshire 5000	VTI
Large Cap Nasdaq 100	QQQQ
Nasdaq Composite	ONEQ
Small Cap Russell 2000	IWM
Mid Cap S&P 400	MDY
Large Cap S&P 500	SPY
Micro Cap Russell 1000	IWC

In function of the relative strength ranking there could be 5 U.S. ETFs in the World Top 5 or there could be none (or there could be exactly one as is the case right now). If you would like to insure a minimum allocation to the U.S. stock markets you should dedicate that portion to the U.S. ETFs of your choice and invest the rest into the Top 5 World ETFs, understanding that at times your entire portfolio could be exposed to the U.S. stock market.

Warm wishes and until next week.

The TimingCube Staff