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Signal Update

Current Signal Performance as of

Signal Type	Trade Date	Index	Return since issued
		Nasdaq 100
		Russell 2000
		S&P 500
		QQQQ

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
QQQQ

Note: QQQQ returns are included for continuity sake.

Market Update

Stocks spent most of the week moving lower as good overall earnings news was not enough to offset increased concerns about a slowing economy. Indeed, GDP numbers released Thursday showed that the economy only grew 3.1% in the first quarter, below views for a 3.5% increase. Business investment slowed significantly, while a key measure of inflation, the core PCE price index, rose the most since the last quarter of 2001. Not surprisingly, stocks took a hit on the news and kept falling until Friday morning, with the Nasdaq 100 and Russell 2000 reaching new lows for the year. Retreating oil prices then ignited a mid-day reversal that helped stocks recoup some of their earlier losses. Even though Friday's reversal occurred on increased volume, it can in part be attributed to short-covering as it is likely that some of the same investors that were shorting in the morning bought back in the afternoon. Once again, all major indices finished the week below their respective 200-day exponential moving average (EMA). The Russell 2000 lost 1.72% on the week. The Nasdaq 100 was flat while the S&P 500 gained 0.41%.

There is no change for us and our current Sell signal remains active.

Trend Timing School

Trendless markets

A market is called range-bound when it remains within a relatively well defined channel, going nowhere, except up and down within that range for prolonged periods of time. A range-bound market is not necessarily bad because it is not always trendless. The definition of a trend is in the eye of the beholder. If you plot a minute chart of just about any stock index you will spot numerous trends, some lasting no more than an hour. As we discuss frequently in these pages, the trends we concern ourselves with are the major ones which last not hours but months, and deliver substantial price movements. There have been some very nice range-bound markets exhibiting strong lasting trends, such as the strong up-channels of the nineties. What investors do not like are sideways (horizontal) range-bound markets that are relatively narrow. In such markets no meaningful trends develop and trend followers are left in much the same boat as active traders and Buy and Hold investors: with not much to show for their efforts.

It does not take a rocket scientist to figure out that we have been stuck in such a trendless, range-bound, sideways market for nearly 20 months. The graph below clearly shows the narrow channel we are in, with a low at 1750 and a high near 2180 on the Nasdaq Composite Index. From an imaginary median line at 1965, the up and down swings have been limited to just shy of plus/minus 11%. Not much room for profitable trading indeed. In retrospect the tops and bottoms look obvious, as does the neat horizontal channel. The trouble is that the channel lines can only be drawn after the fact, and no one can reliably and consistently call the tops and bottoms. As Trend Timers we never want to miss a trend. When our Model detects what looks to be the beginning of a new trend we jump on board, as we have now done three times since entering this channel. With the current Sell signal our Model indicated the beginning of a promising new downtrend. No one knows whether this budding trend will fail as it approaches the bottom of the channel and head back up one more time or breaks the channel to develop into the full fledged bear move we want to see.

This trendless channel is frustrating all investors alike but Trend Timers, who normally thrive on the big moves, can become demoralized and abandon the system, or get tempted to trade faster in an attempt to exploit the smaller ups and downs within the trading range. The big danger with such an approach is to get whipsawed into numerous trades, many of them losses, however small. Even active traders need some evidence that a trend has started before they can take a position. This usually means at least a 3-5% move occurs before the trigger can be pulled, and by the time they give back the same 3-5% at the next reversal, there is not much profit left, if any. This is precisely what has relegated many aggressive traders to the bottom of performance rankings for the last year and a half.

The big question on everyone's lips is "how long will this trendless market last?" We cannot find a longer one during the last century. Yes, many market historians point to famous sideways market periods such as 1966-1982 and 1986-1990 as evidence that the current flat patch could last much longer yet. The reason these do not concern us is that they are not comparable for failing our "narrow channel" test. The fact that the markets end up more or less where they start after long periods of time is irrelevant. What matters is what they do in between. For example, during the 1966-1982 stretch you could have found many powerful trends to ride for great profits. Going from the bottom of that channel to the top would have gained you a hefty 85%. The 1986-1990 time period was similar with a bottom to top "distance" of 67%.

All we know is that the current trendless market is already long by historical standards. What keeps us excited, and patient, is the knowledge that such sideways action always represents a consolidation phase which more often than not precedes the next big move. We don't know if the next big move will be up or down, or when it will come, but in the meantime we focus on the self-discipline to stay with the signal and make absolutely sure we don't miss out when it finally comes.

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