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

Market Update

Stocks gained more ground this holiday-shortened week, allowing the Nasdaq Composite to close at its highest level since early November. Most of the action took place on Tuesday, as investors brushed off news that North Korea had conducted a new nuclear test, to focus instead on a better-than-expected reading of consumer confidence from the Conference Board. All main averages soared as a result, with the Nasdaq Composite vaulting 3.5% higher by day's end. Stocks relinquished part of their gains during the next session, however, as market participants reacted negatively to a spike in bond yields, sending the S&P 500 1.9% lower. See-saw action prevailed for most of Thursday's session, but the bulls eventually won the day as the main indexes all finished with gains in excess of 1% on brisk trade. Buoyed by higher oil prices, energy stocks rallied Friday and eventually triggered a last-hour run for the broader market that helped the major averages cap another strong week with more gains. With trading for May now over, the S&P 500 has just completed its third straight monthly advance, clearly showing that the broad rally that started early March is still in full force.

The Nasdaq 100 (QQQQ) gained 5.49% on the week to close again above its 200-day exponential moving average (EMA). As for the Russell 2000 (IWM) and S&P 500 (SPY), they posted respective weekly gains of 4.98% and 3.94%. Both ETFs remain located in-between their 50-day and 200-day EMAs.

For its part, our World portfolio posted a 4.25% gain this week. The portfolio consists of the 5 top-ranked world ETFs as of May 22, which marked the beginning of the current 4-week holding period.

Our current Buy signal remains in effect.

Trend Timing School

Managing your money

Many assume that money management involves all aspects of living within the limits of our income, such as budgeting, managing expenses, or devising savings plan, all of which are really elements of personal financial planning and not money management. In the world of investing, money management refers to how you manage your investment positions. The term money manager is predominantly used for investment professionals who manage large pools of other people's money, such as mutual funds. Yet, as investors, we all are our own money manager and the ultimate responsibility for our investments is entirely ours.

This is why, with the possible exception of reining in one's psychological issues, many experts view money management as the most important activity for the investor.

Money management is a vast field about which many books have been written. This article, by necessity, provides an overview of the topic at hand.

Each of us possesses a set of characteristics which greatly influence the money management techniques we need to implement, and to make matters worse, these characteristics evolve over the course of our lives thus requiring our money management approach to adapt accordingly. Key investor characteristics are:

Our investment knowledge base
The simple truth is that some have never invested in the stock market and are not interested to learn its intricacies, while others spend a lifetime, privately or professionally, learning about the markets and perfecting their trading skills. The former will seek simple hand-off avenues such as actively managed funds or other professional help. The latter will engage in sophisticated stock picking and market timing strategies complemented with risk management techniques such as strategy and investment diversification, hedging, setting of stop losses and the like.

How much time we have available
The time element plays a key role in shaping our money management approaches. The first measure of availability is how much of our daily schedule we can dedicate to monitoring and attending to our investments, which varies from none to investing around the clock. The other variable has to do with our age and the period left before our investments will be needed for retirement income. Of course this is not purely a matter of availability but also predisposition. Some of us have a lot of spare time available but no interest in spending it worrying about investments. On the contrary, others who are well into their retirement years develop their interest for investing into near full time hobbies and invest in a more active and aggressive fashion than their retiree status would normally call for.

Our risk tolerance
Knowing our real disposition when it comes to volatility, drawdowns and losses in general is very difficult without the help of first hand experience. Until you lose some of your hard earned money you cannot really know how you will feel. Yet, knowing our inclination or abhorrence for risk is critical because it dictates how aggressive or conservative our investments and strategies need to be. Beyond pure personal emotions, risk tolerance should also be influenced by circumstances such as age, professional status and level of affluence. A young investor can, and probably should, be aggressive because with a time horizon of decades he/she can recover from temporary losses making it possible to optimize performance for the long term. On the other hand, a retiree who depends on his/her investment income for living expenses needs to keep losses to a strict minimum.

Judging by their feedback it is interesting to note that TimingCube subscribers cover the entire spectrum of investor characteristics.

At one extreme you have an investor with no or little previous market experience, conservative, with little time and energy to spare for investing. Traditionally such investors would simply use a buy and hold of index funds strategy or, more recently, one of the "life cycle funds" in which everything is done for you. For example, the Fidelity Freedom 25 mutual fund (FFTWX) which invests in a combination of equity, fixed-income, and money market funds using a moderate asset allocation strategy is designed for investors expecting to retire around the year 2025. It allocates assets among underlying funds according to an asset allocation strategy that becomes increasingly conservative over time.
The only problem with buy and hold, and with the equity portion of the life cycle funds, is that the down side risk is not compatible with the conservative nature of this investor. A Trend Timing approach with index funds would be the best technique to manage the downside risk, but with no time to watch and implement the strategies, this type of investor frequently uses the services of a professional investment advisor.

At the other end of the scale we have a professional trader with high market knowledge and years of experience, dedicated full time to his investments, very aggressive and able to stomach high volatility. This investor will typically invest in individual stocks using various trading strategies and overlay risk management techniques driven by market timing indicators such as the TimingCube signals.

As these characteristics change over the course of our lives, it is important to periodically reassess their impact on our money management game plan.

Inevitably, money management involves the following activities:

• Setting objectives
• Portfolio allocations
• Selection of strategy
• Risk/reward management

There is a lot to be learned about setting objectives and portfolio allocation, but Trend Timing and the TimingCube service specifically help with strategies and risk/reward management. These money management techniques depend greatly on investor psychology. Given the strong long-term record achieved by our Long and Short strategy, inexperienced investors are often tempted to juice up their returns by using leveraged ETFs or margin. The problem is that few understand the volatility-induced rollercoaster and potentially devastating impact of leverage until they actually experience it. Our view is not that leverage is inherently bad and should be avoided, but that it should only be used by seasoned investors who truly understand the risks they are taking and accept them.

Another money management bias can be seen with the individual investor being more likely to go with the trend and want to add money or leverage as a trend develops and gathers strength, whereas the professional money manager is more inclined to focus on the risk management side of the equation, with a more contrarian attitude. As a trend advances and technical indicators show overbought/oversold signs, the manager would be looking to lock in some of the gains and prepare for a correction.

The TimingCube model has built-in money management techniques such as detecting up and downtrends to side-step major market downturns, and Cash signals which effectively limit our downside risks. Because of this we generally recommend following the signal with no second guessing, but we recognize that there are many subscribers who actively apply discretion to the implementation of the strategies as part of their money management game plan.

It is not uncommon for investors to feel overwhelmed or somehow inadequate in the face of all the required money management decisions and activities. Investors in that predicament frequently elect to ignore the issue altogether and in doing so make tacit decisions which more often than not turn out to be bad ones. They would be better served by the services of a professional investment advisor such as the ones at our sister company MARKETTREND Advisors. Not only can advisors assist with the grand plan, the portfolio allocations, and the design of a suitable blend of strategies and risk management options, but they also take care of the day to day implementation, decision making and trading.

FAQ of the Week

Question: Should I use stop-loss orders?

Generally we do not recommend them, but as always, it is of course for you to decide if you want to apply your own stop-loss orders. Our Model in essence has built-in stops with the 9% and 15% Cash signals. As a refresher, a Cash signal is automatically issued by our Model if the Nasdaq Composite Index moves against our current position by more than 9% from our Buy or Sell entry point, on a close. Once the index has advanced 7% or more from our entry point, the maximum drawdown limit is ratcheted up to 15% and the Cash signal effectively becomes a trailing stop.

Admittedly, the Cash signals are not the same as setting stop-loss orders with your broker. The particular investment vehicle you use might be more volatile than the Nasdaq Composite, and if you set them too tight even an intra-day spike could stop you out. The risk then is to be stranded on the wrong side of the trend if the market resumes in the direction of our signal. For more volatile funds such as many of the international ones in the World ETF Ranking, wider stops than our Cash signals are justified.

The advantage of a stop-loss order is that it could protect you better against fast and significant drops, although stops are no guaranties of minimum share price. The price you pay for such downside protection is that, as our research shows, the addition of stops (including our Cash signals) increases the amount of trading and reduce overall performance. 

Warm wishes and until next week.

The TimingCube Staff