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

Market Update

Pushed by a batch of positive economic news, stocks continued their ascent this week. Market action remained largely restrained the first 3 days of the week as investors simply waited for the latest Federal Reserve's decision on interest rates. The Fed announced Wednesday afternoon that it was cutting the funds rate by 25 basis points, from 2.25% to 2%, and also hinted that it may pause for some time before deciding if rates need to be cut further. Investors did not immediately cheer on the news, but did so the next day, also comforted by the fact that the economy did not fall into recession in the first quarter, but instead grew by 0.6%, as the government announced. As a result, Thursday turned out to be a great day for the markets, with the Nasdaq Composite powering up 2.8% on heavy volume. It is interesting to note that there is some sector rotation going on: tech stocks, semiconductor companies, retailers and even financials have performed very strongly of late. On the other hand, with the Fed implying that interest rates may have bottomed, the dollar got a boost, which in turn knocked down previous leaders such as agriculture, oil, materials and commodities-related stocks. On the employment front, the Labor Department released a better-than-expected jobs report Friday morning: employers only cut 20,000 payrolls in April, much less than the 75,000 economists had anticipated. The unemployment rate also fell to 5%. These numbers show that the economy is in better shape than first thought and may be able to avoid a deep downturn. If stocks initially moved higher on the news, they retreated partly on profit taking Friday, still capping another strong week for the markets.

The Nasdaq 100, S&P 500 and Russell 2000 respectively gained 3.30%, 1.15% and 0.53% over the 5-day span. The S&P 500 has now joined the Nasdaq 100 by finishing the week back above both its 50-day and 200-day exponential moving averages (EMAs). As for the Russell 2000, it remains situated in-between its 50-day and 200-day EMAs.

For its part, our World Index Ranking portfolio gained 2.70% this week. The portfolio consists of the 5 top-ranked world indexes as of April 25, which marked the beginning of the current 4-week holding period.

Our current Buy signal remains in effect.

Trend Timing School

The Fed to the rescue

With their latest rate cut this week, the Fed's aggressive easing campaign since September of 2007 has brought the target Federal Fund Rate down from 5.25% to 2%. With unusually large as well as unscheduled emergency rate cuts, the Fed has apparently been successful in convincing investors that it will do what it takes to keep the economy from falling into a recession.

Even more important than the rate cuts are the Fed's unprecedented liquidity injections and their demonstrated willingness to intervene forcefully in the private sector to bail out any financial institution that may get in trouble. The visible result: Wall Street heads higher on unbridled optimism about the credit crisis being under control. It is no surprise that the most recent stock market low established on March 17, 2008 coincided with the last-minute bargain buyout of Bear Stearns by JPMorgan with a little help from the Federal Reserve.

Even the moribund U.S. dollar has regained some strength lately. Normally, lower interest rates can weigh on a nation's currency as traders transfer funds to countries where they can earn better returns. Since the middle of March the dollar has rallied in the face of lower Fed rates indicating that currency traders now believe, however temporarily, that the Fed succeeded in averting a major liquidity crunch induced financial panic and a severe recession.

To top it off, the government just released the preliminary GDP numbers (Gross Domestic Product, which measures the economy's growth) for the 1^st quarter of the year which at +0.6%, just like the 4^th quarter of 2007 (what are the odds?), proves irrefutably that the economy has not entered recession territory. Never mind that a large part of the numbers was driven by government deficit spending, inventories growth and a very optimistic inflation assumption of 2.6%. While 0.6% growth is really no growth at all, seemingly, nothing could curb the market's confidence.

While it is extremely hard to see clearly through tears of enthusiasm and jubilation, a few calmer minds have noticed that the last few weeks have been extraordinary in the historical context. The Fed has been forced to take measures that have not been employed since the Great Depression and, but even more ominously, it had to take actions that have never been used before, period.

The Federal Reserve which has traditionally been the overseer of banks and the monetary policy has unilaterally redefined its role. It has anointed itself the protector of Wall Street. While the masses swallow the media spin hook, line and sinker, many industry insiders are trembling. They know just how scared the Fed is because this time around, the very fabric of our financial and monetary system is hanging in the balance. More than one financial expert has labeled the Fed's actions as crossing the financial Rubicon. For anyone in need of a Roman history refresher, according to Wikipedia.com the phrase "crossing the Rubicon" refers to any people committing themselves irrevocably to a risky and revolutionary course of action - similar to the current phrase "passing the point of no return".

Specifically, the Fed has created two new lending facilities for primary dealers and facilitated the Bear Stearns/JPMorgan merger with a special loan of $30 billion seen by many as outright monetization of worthless credit derivatives. Since the establishment of the Term Auction Facility (TAF) in December 2007 to provide greater liquidity to the system it has increased in size several times, and in March the Term Securities Lending Facility (TSLF) was created to provide Treasury securities to primary dealers in exchange for a wide array of qualifying securities for a 28-day term. Many see the Fed accepting an ever wider array of qualifying securities and believe that these are revolving loans which are for all practical purposes never going to be reimbursed, or only with much cheaper dollars way down the road.

The fact that the recent Fed policy changes took place without any of the normally mandated discussions with Congress and no formal public disclosure explains why the average investor is oblivious to the dangers. For now, the market consensus is that the Fed has become the invincible knight battling the evil forces conspiring to undermine the U.S. financial system. One by one it successfully defeats them all. There does not seem to be a menace that the Fed's panacea, massive injections of liquidity, cannot overcome. History and experience do not apply anymore because we live in a new era in which the rules are different and in which actions bear no consequences. Or do they?

FAQ of the Week

Question: How did TimingCube performance stack-up over the last 12 months?

There are plenty of performance details on our own "Results" page, but for once we decided to go find the answer where, together with some 660 other timing services, our performance is independently tracked: TimerTrac.com.

As it turns out, the TimingCube World Index Ranking Long/Short strategy, with a 12 months return of 29.16%, was THE top performer of all the non-leveraged diversified strategies tracked (see Chart 1 below).

Chart 1: TimingCube World Index Ranking Long/Short 12-months return (Courtesy TimerTrac.com)


This also compared favorably to the market as a whole as exemplified by the S&P 500 which lost 10.77% over the same time frame. In fact, our preferred TimingCube strategy led by quite a margin, especially when you consider that TimerTrac imposes a 30-day delay on TimingCube results (at our request, so as to not give away our signal), which means that while we ranked ourselves against 12 months returns for competitors, ours were actually for the 11 months from 4/30/2007 to 3/31/2008.

To complete the picture, TimerTrac's results for our Long and Short strategy applied to the Nasdaq 100 was 5.16%, and for the World Index Ranking Buy and Rebalance strategy it was 7.70%. These third party findings corroborate that, at least for the last 12 months, both our Trend Timing and our Momentum models worked to beat the broad market but, more importantly, that when the two models are combined their performance has been unbeatable.

Warm wishes and until next week.

The TimingCube Staff