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

Market Update

After a steady rise since the market bottomed out in mid-March, stock finally marked a pause to close the week modestly lower. Monday saw the main averages post minor losses on higher oil prices and Microsoft's decision to withdraw its bid for Yahoo. Despite negative headlines in the financial sector and another surge in oil prices, stocks reversed higher Tuesday to net the Nasdaq Composite a 0.8% gain for the session. Just as stocks looked poised to keep rising, selling hit on Wednesday, causing the main indexes to shed almost 2%. The day's drop was mainly due to financial stocks, as companies such as Merrill Lynch were affected by the newly-issued SEC requirement that Wall Street institutions disclose their capital and liquidity levels. Better-than-expected retail sales for April appeared to please investors Thursday, helping stocks recapture some of the previous day's losses. With financial giant AIG announcing an $8 billion loss for its latest quarter, the market was set for a weak opening Friday. Indeed, stocks ended the day moderately lower on light trade, also affected by record oil prices as crude closed just under $126 per barrel.

For the week, the Nasdaq 100, Russell 2000 and S&P 500 posted respective losses of 1.09%, 0.78% and 1.81%. While the Nasdaq 100 is still located above both its 50-day and 200-day exponential moving averages (EMAs), the S&P 500 and Russell 2000 are situated in-between their two EMAs.

For its part, our World Index Ranking portfolio underperformed its U.S. counterparts this week with a 2.43% loss. 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

A few words about compounding

The power of compounding is a key cornerstone of any serious long term wealth building program, including TimingCube's Trend Timing. It is compounding, together with time, which can cause even modest investments to miraculously multiply into fortunes. Compounding is a very simple yet widely misunderstood concept. The straightforward definition of compounding is to earn interest on both the principal and on the accrued interest, or the ability of reinvested returns on an investment to generate their own returns. Most people like to think in terms of simple additions and fail to appreciate that when you let investments compound by reinvesting the returns, the growth is not linear but rather exponential through multiplication. What exponential means is that instead of growing in a straight line by the same amount year after year, your investment grows like a snowball, in larger and larger chunks and under constant acceleration.
The best way to illustrate this is through an example with real numbers. In the table below you can see what an initial investment of $10,000 becomes when compounded over several years at different rates of return. In just a few years the initial investment becomes negligible because it is swamped out by the return on the reinvested returns, i.e. the power of compounding.

Future Value of a single $10,000 investment

	Yearly Return Rate
Year	5%	10%	15%	20%	25%
5	$12,763	$16,105	$20,114	$24,883	$30,518
10	$16,289	$25,937	$40,456	$61,917	$93,132
20	$26,533	$67,275	$163,665	$383,376	$867,362
30	$43,219	$174,494	$662,118	$2,373,763	$8,077,936
40	$70,400	$452,593	$2,678,635	$14,697,716	$75,231,638

While it's hard for most of us to think of millions - or tens of millions - of dollars as realistically achievable wealth, it's exactly what we all can achieve when we harness the power of compounding. The numbers in the table are not as far fetched as they seem. For starters, most of us try to save and invest as much as we possibly can every year, not just once. But we have to remember that to allow the compounding effect to work, we have to keep in mind that it amplifies the growth of our working money, and because time and reinvesting make compounding work, we must not alter the principal and earned interest.

Very few of our subscribers are 20 years young anymore, but with life expectancy approaching 80 years in the U.S., even someone starting in their forties or fifties can accumulate significant wealth.

We firmly believe that the power of compounding is one of the most important lessons for all of us to assimilate - and possibly the biggest gift we can bestow on our children and grand-children - if we just remember how to apply it to our wealth building program:

• Start saving/investing early
• Keep saving/investing as often and as much as possible
• Commit to a long term, all-weather investment strategy
• Stay disciplined, don't quit, don't be tempted to dip in your nest egg
• Let compounding achieve its miracles

FAQ of the Week

Question: Can I use the TimingCube recommendations to invest my retirement funds?

The answer is an emphatic yes. Moneys you set aside for your retirement are the funds that most necessitate a sound, disciplined, long-term, all-weather investment method. Retirement funds have a number of ideal characteristics as investment assets, namely that you are unlikely to withdraw and spend them in the short term and that gains and dividends are typically reinvested. Even if you are already retired and are living off the nest egg, you still have a long term perspective for your retirement assets. In addition, if the funds are in a qualified retirement plan such as an IRA or 401(k), you further benefit from tax deferred growth. By fully reinvesting dividends and capital gains and not having to pay taxes until you start withdrawals, you unleash the full power of compounding as we discussed in the Trend Timing School topic above.

The most common challenge in qualified retirement plans is finding available investment vehicles and in turn adapting to the most appropriate strategy. By law, the use of short selling and margin trading are prohibited in retirement accounts. If your IRA account is with a large financial services or brokerage firm you most likely have access to ETFs or mutual funds that track broad market indices or their opposites, with or without leverage; as well as funds which track international indexes. These funds should allow you to fully implement any of our strategies you decide is right for you. Even if your brokerage firm or 401(k) administrator offers only a few choices there typically is at least one index fund suitable to implement the Long Only strategy. While not the most aggressive strategy, Long Only should still let your retirement capital substantially outperform Buy and Hold.

Warm wishes and until next week.

The TimingCube Staff