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

Market Update

Wall Street continues on its winning streak with most major indexes posting solid gains for the week. Stocks were significantly higher on Monday with the S&P 500 finally being able to enter into positive territory for the year. The market was fueled by several good news, like a strong improvement in pending home sales, as well as a bullish manufacturing report in China (as a reminder, China - FXI is still ranked number one in our World ETF ranking). Later on, a lot of speculation went on before the official publication of the Obama administration's bank stress test on Friday. Rumors peaked on Wednesday as the market was flooded with leaking information, saying for instance that Bank of America will need another $34 billion in capital, CitiGroup between $5-$10 billion, and Wells Fargo $15 billion. All this nervousness put a halt on the market progression, causing all major U.S. indexes to retreat between 1% and 2.5% on Thursday. On Friday, the announcement that job cuts for April fell to 530,000 compared to 633,000 in March was viewed as a sign that the labor market is improving. There was also a relative relief following the publication of the government stress test results, as it appears that most banks will not need government money to address their capital gaps.

The Nasdaq 100 (QQQQ) lost 0.41% on the week and is still above its 200-day exponential moving average (EMA). On the other hand, the Russell 2000 (IWM) and S&P 500 (SPY), posted respective weekly gains of 4.49% and 5.79%. Both ETFs remain located in-between their 50-day and 200-day EMAs.

For its part, our World portfolio posted a 5.76% gain this week. The portfolio consists of the 5 top-ranked world ETFs as of April 24, which marked the beginning of the current 4-week holding period.

Our current Buy signal remains in effect.

Trend Timing School

Ruler and pencil as market timing tools

In this day and age, thanks in large part to widely accessible computers, the levels of complexity and sophistication in many fields has increased dramatically. This is certainly true in the world of investing where vast amounts of information, analytical tools and algorithms drive the large majority of trading by hedge funds and institutional investors. The rules and algorithms embodied in the TimingCube trend timing model stem from technical analysis and are another example of a mechanical, computer-aided investment strategy made accessible to individual investors. While we certainly depend and fully rely on our model's Buy/Cash/Sell signals, as investors we enjoy and highly benefit from one of the oldest and most widely used techniques in the book: trendlines.

Our long-time readers know that market movements, instead of the seemingly random daily ups and downs, generally organize themselves in trends, as does most everything in nature. There are up trends, down trends and flat trends, and there are trends of various durations. There are trends within trends. The long-term primary or major trend is interspersed with shorter secondary or intermediate trends. Active traders will look at minute or hourly charts to spot short-term trends. Aggressive investors, and we might place ourselves in that category, look at daily or weekly charts to best identify secondary intermediate trends lasting from a few weeks to a few months, which are also the ones tracked by the TimingCube model. Long-term investors will worry strictly about the major predominant trends in order to stay invested most of the time while maintaining solid protection against major bear markets.

The beauty of trendlines is their simplicity, and their visual and intuitive nature. Sure, there have been many attempts to turn trendline theories into complicated science, with numerous treatise and books written about them, but by and large they remain more of an art than an exact science. For our purposes, there is fairly little required to trace major and intermediate trends. The same approach and techniques apply to anything you want to track, broad stock market indexes, individual stocks, commodity prices, exchange rates, you name it. If you can plot the price of something, you can draw trendlines with nothing but a ruler and a pencil.

In their simplest form trendlines are straight lines drawn under two rising intermediate price lows (bottom reversal points) for an uptrend or over two decreasing intermediate highs (top reversal points) for a down trend. The reason trendlines are significant is that they tend to form zones of support or resistance, respectively. To begin with the most effective and telling application of trendlines to a macro view of the current market situation we show in Chart 1 below which depicts the Nasdaq Composite index since the start of the previous equity bull market in 2002.

Chart 1: Major long-term trends can last for years



For long-term price charts we prefer to use a logarithmic scale to straighten the trends. On a regular arithmetic scale, a long-term bull market trend frequently looks like an ascending curve moving away from a straight trend line. The log scale corrects that optical illusion by making all vertical increments equal in percentage terms. The chart above highlights nicely the two main phases of the 2002-2007 bull market. The initial steep ascending slope of the 1^st year followed by a slower trending channel which remained intact until it was decisively broken to the downside by the new bear market in 2008.

In that wide view, with the help of a down trendline plotted across the declining tops since the 2007 bull market high, it is fairly clear that the prevailing major trend in effect today remains the primary bear market. Despite the strong rally we are experiencing since the March 2009 low, the market has a way to go before it even approaches the main area of resistance, which the down trendline represents. The market may well have started a new bull market rise, meaning that it may eventually reach and break through the downtrend, but do not expect it to get there in one straight shot.

The one year view in Chart 2 below gives us a better handle on the intermediate trends, but it also sheds some light on the successive approximation nature of trend lines. Most trendlines are re-drawn over and over again before they settle into their final long-term slopes. Separate from the primary downtrend seen in Chart 1, Chart 2 reveals a succession of intermediate down trendlines, also called fan lines, which are typical of consolidation market phases. Re-drawing of a new downtrend is required with every intermediate reaction (bear market rally) during the major trend (bear market). These reactions can take many forms such as triangles, rectangles, or fan lines as presently. This process will continue until either the primary trend resumes and the bear market goes to set new lows, or a new bull market trend is established by decisively braking through the previous primary downtrend (which currently lies somewhere around 2100 on the Nasdaq Composite).

Chart 2: Intermediate trends last from a few weeks to a few months



This is all you need to know about trendlines to get started. Yes, with experience there is a lot more one can learn about trendlines to become better at interpreting their more subtle nuances. How strong is a trendline? What constitutes a valid penetration of a trendline? And much more if you so desire.

The TimingCube model does not make direct use of trendline techniques per se but we like to use them from time to time to illustrate market conditions. The visual perspective offered by trendline charts is unique in allowing anyone with minimum training to identify the trends that complement our investing strategy.

FAQ of the Week

Question: What is the "Weekly Change" indicator in the World ETF Ranking table?

The "Weekly Change" indicator is displayed next to the "Rank" column purely as a convenience, to provide a sense of direction, but most importantly so you don't have to go manually compare with last week to know how the positions changed. The up/down green/red arrows show the direction since one week ago, and the number indicates how many positions gained/lost in the ranking.

The Weekly Change information is interesting to monitor, especially on the complete list, but it is not actionable. The World ETF strategy is to invest in the Top 5 ETFs and rebalance every 4 weeks, not to go after the big movers. Some creative subscribers have attempted to read more into the indicator than we intended and have invented and tested (mostly to their great chagrin) any number of creative strategies such as:

• Buy the biggest movers (this usually yields the most volatile ETFs which are just as likely to go down big as they went up)
• Buy the ETFs after they fall to the bottom of the rankings (but you never know how long they can stay at the bottom and how much more they can lose)

The bottom line is that you should see the Weekly Change simply as one more piece of information, not as a trading signal.

Warm wishes and until next week.

The TimingCube Staff