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

Market Update

Wall Street has been on a roller-coaster this past week. The equity market first surged on Monday in reaction to the massive euro rescue package that the EU countries agreed upon over the week-end. All major indexes rose anywhere between 4% and 5% on that day. As the week progressed, the initial optimism fueled by the euro bailout plan started to fade. There was still a regain of energy from the bull camp on Wednesday as a new austerity plan was announced in Spain. However, market reaction quickly turned around as the revised perception was now that these massive austerity measures would seriously impair the already fragile economic recovery effort in Europe. On Thursday, this negative sentiment was exacerbated here in the US by disappointing jobless claims numbers which remain at a stubbornly high level. Market pressure intensified on Friday as the Euro reached a 19-month low against the dollar, pushing the S&P 500 down 1.9% for the day. Despite this last 2-day sell off, all major indexes are solidly higher for the week.

The S&P 500 (SPY) , Nasdaq 100 (QQQQ) and Russell 2000 (IWM) respectively gained 2.36%, 3.35% and 6.43% over the five-day span. All three ETFs are now below their 50-day exponential moving average (EMA) but remain located above their 200-day EMA.

For its part, our World portfolio posted a 3.62% gain this week. The portfolio consists of the 5 top-ranked world ETFs as of April 23, which marked the beginning of the current 4-week holding period. Please note that since we now have an active Cash signal, the World approach calls for selling your holdings if you follow the "Long Only" or "Long and Short" strategy. Only if you follow the "Buy and Rebalance" strategy should you remain invested in the top 5 ETFs, as the strategy calls for staying invested at all times. Please go to the "Our Service" page for all the details.

Our current Cash signal remains in effect.

Trend Timing School

How often should we trade?

At the end of the day, the only reason we bother investing in the stock market is to generate profits. The more the better. There seem to be an endless number of ways to invest and countless decisions that can affect the return on these investments. We devised the Trend Timing investment philosophy and system to gain some measure of control and boost our profits over Buy and Hold while keeping the investing process simple and manageable. Our Model has taken much of the guesswork out of the equation, telling us precisely what to trade (the U.S. market as whole and/or the most promising world markets through one of the investment vehicles described in the "Our Service" page), and when to trade (Buy/Cash/Sell signals). Our natural tendency to analyze and second guess is always on the hunt for improvements. Since the size of our profits over a given time period can be expressed as how much we gain/lose on an average trade and how frequently we trade, we immediately ask, would trading more frequently not improve profits? Well, alas, the answer is an emphatic no.

Of course, to anyone inclined towards more rapid trading, possibly looking for faster profits or simply more excitement, may we suggest that Trend Timing is not for you, and that your subscription money would be better applied to a trading newsletter.

And before going any further we would be remiss if we did not promptly reassure all the loyal Trend Timers: "We are absolutely not contemplating a change to our Model to accommodate frequent traders".

Many comments we receive go something like "Why was there no Sell signal at the beginning of the recent drop? Even if it goes back up from here, we could have been ahead by buying back at a significant discount. Why can't we exploit all these smaller ups and downs?" The truth is that extensive research has demonstrated that increasing the Model's sensitivity to generate more frequent signals of shorter duration does not lead to higher profits.

Over the nearly 20 years of history we track, live and backtested, our model has issued 71 signals and our accuracy ratio is at 65% winning trades (2-to-1 winning ratio). A funny thing happens when you attempt to speed up the process, the more signals you issue the lower the winning ratio. More of the trades are false signals that result in losses. Then you get the double whammy! Because they were false signals you are now stranded on the wrong side of the market, and until the next Buy or Sell is generated you might forfeit a lot of the gains experienced by those riding the signal through. The net result is substantially lower profits over time.

Trend Timing follows the trend. We always let the market tell us when the trend has changed. There first has to be market action before a new trend can develop.

Trend Timing does not attempt to spot the exact tops or bottoms. We believe no one can do so consistently. In the example above, you would have needed a very good psychic to tell you to sell because the market was going to drop 10%.

Trend Timing is not designed to time us in and out of market pull-backs and corrections. It is geared towards long-term trend changes and this is why we issue very few signals.

This long term approach is exactly what sets Trend Timing apart from the more frequent trading of market timers in general. The two approaches are radically different and should not be mixed.

In contrast to Trend Timing, many active trading systems look not at broad market trends but rather at short term imbalances as buying and selling signals. There are numerous systems built around well known metrics such as the Relative Strength Indicator (RSI) or Price/Earnings (P/E) Ratio to spot oversold/overbought or underpriced/overpriced conditions. Such conditions can change daily or weekly, or instead, as during strong bull or bear markets, they can stay stuck in an under or over condition for prolonged periods of time. The constant involvement required and the much lower winning trade ratios make this frequent trading approach very difficult to sustain over longer periods of time. The Trend Timing wealth building system is designed to help us for the rest of our lives.

Yes, for some people the prospect of giving back, much less losing 10 to 15% prior to a signal is not acceptable, and we respect that. However, we feel this is a small price to pay to consistently participate in the major up and down market trends, and regularly achieving superior market-beating profits. We don't try to dictate their frequency, we just take profits when they come.

FAQ of the Week

Question: How do you calculate the return of a signal?

At the risk of repeating ourselves, and since we still receive questions on the subject from time to time, please allow us to explain one more time how the performance numbers are calculated on the 'Results' page.

First, with the intent to better match the reality of your trading, we do not use the market indexes themselves, but their corresponding ETFs instead: QQQQ for the Nasdaq 100, IWM for the Russell 2000 and SPY for the S&P 500.

Second, we always start each trade using the open value on the day that immediately follows a signal change. We do the same thing for the World approach, using the open price of each ETF on the trading day that immediately follows the signal change.

Finally, Sell signal performance numbers are calculated using the traditional shorting method, which can bring slightly different results than the use of inverse ETFs (for more on this, please visit the article we wrote on January 23, 2009: What to expect from Inverse and Leveraged ETFs?).

Warm wishes and until next week.

The TimingCube Staff