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

Market Update

Stocks resumed their march forward this holiday-shortened week, rising in all four sessions on increasing volume. A strong showing by tech leaders Apple and Google helped the main indexes move solidly higher Tuesday, with the Nasdaq Composite posting a 1.5% gain. Lower oil prices and a 3.3% increase in new home sales for April also boosted investor sentiment. Despite a sharp rebound in the price of crude Wednesday, stocks showed their resilience by closing the session higher. The Commerce Department announced Thursday that GDP for the first quarter was revised higher to 0.9%, suggesting the the economy may avoid a much-feared recession. Coupled with diving oil prices, the news triggered another rally that propelled the Nasdaq Composite to a 0.9% gain. The technology sector got a lift Friday after Dell reported earnings results that easily topped expectations. On the economic front, the core PCE (Personal Consumption Expenditures) for April came in at 0.1%. Such a low reading was viewed as good news by investors as the core PCE is supposedly the Fed's favorite inflation gauge. Stocks rose once more as a result to cap another week of strong gains.

The Nasdaq 100, Russell 2000 and S&P 500 posted respective gains of 3.76%, 3.34% and 1.78% on the week. The Russell 2000 has now joined the Nasdaq 100 by finishing the week back above both its 50-day and 200-day exponential moving averages (EMAs), while the S&P 500 is situated in-between its two EMAs.

For its part, our World Index Ranking portfolio underperformed its U.S. counterparts this week with a 0.14% gain. The portfolio consists of the 5 top-ranked world indexes as of May 23, which marked the beginning of the current 4-week holding period.

Our current Buy signal remains in effect.

Trend Timing School

Planning for retirement, Part 2

In last week's Trend Timing School, "Planning for retirement", we discussed how to maximize your savings and retirement investing, but we did not address where, how and how much to invest. Guess what, we are dedicating today's article to that matter.

When it comes down to deciding how much to invest we face a highly personal question that we all must answer for ourselves. As we wrote many times in our editorials, we strongly believe in diversification as a primary risk management tool, and always recommend spreading our wealth across multiple types of asset, and investing in diverse instruments and indexes. We also know that no investment system or strategy can be perfect all the time, including ours.

Putting aside such diversification matters and instead concentrating on the portion of assets we earmark for stock market investing following the TimingCube System , we recommend investing the entire portion per the signals. This portion of our assets is not where we want to keep some cash available or hedge our bets. We want to maximize our returns and we do so by fully participating in all meaningful market moves, up or down. On the other hand, we oppose any strategies that expose our capital to major losses (such as those possible with Buy and Hold during a bear market), or investment vehicles that lag or barely keep up with inflation. Even during our retirement years, when we depend on withdrawals from our nest egg to pay for our living expenses, we do not favor the frequently recommended fixed income debt instruments such as bond funds because most struggle to beat real inflation, and the high yielding ones tend to be risky junk bonds. Instead we commit the entire portion to our all-weather Trend Timing approach to stand a better chance to continue growing our savings while generating the current income we need.

Our next task is to select how we follow the signals, which we do by choosing the strategy or the combination of strategies which best suits our objectives and risk/reward personality. Typically we would favor the implementation of the Long and Short strategy, which delivers better returns and provide protection during down markets. While investors who are more inclined toward international diversification will favor the top 5 indexes recommended by the World Index Ranking system, more conservative individuals will prefer to focus on US domestic markets and a blend of 3 primary indexes. For non-retirement funds we can simply go long and short our preferred ETFs, with or without leverage, note that we do not recommend to use margin on more than 20% of your portfolio and with international markets which can be very volatile, we do not advocate the use of leverage at all.

Because the tax code prohibits using funds in retirement plans as collateral to borrow money, we are effectively prevented from selling short or trading on margin in such accounts. Thus, when using the ETFs that are normally our core investment vehicles we used to be restricted to only using Strategy 1, Long Only. Yet many of us are seeking more aggressive returns and to that end inverse and leveraged ETFs as well as alternate investment vehicles like options, will let us implement our TimingCube strategy of choice while complying with the tax code.

Signal	Strategy	Bull/bear index ETF or Mutual Funds (see Note 1)	Options
Buy	Long	Buy ETF or Mutual Fund	Buy call option contract (10 to 15% of money)
	Long with Margin	Buy 2x ETF or Mutual Fund	Buy call option contract (20 to 30% of money)
Sell	Short	Buy inverse ETF or Mutual Fund	Buy put option contract (10 to 15% of money)
	Short with Margin	Buy 2x inverse ETF ot Mutual Fund	Buy put option contract (20 to 30% of money)

Note: To find the list of specific ETF and mutual funds to use in each strategy, please read the Our Models section of the Our Service page.

The investment vehicles and transactions listed in the table above assume your account is at a brokerage firm which offers such investment choices. Not all brokers allow option trading in retirement accounts and not all feature bear funds like the ProFunds and Rydex fund families. Besides such individual broker restrictions, most retirement plans such as traditional and Roth IRAs which are most common, and a good number of self-employed SEP or Keogh plans are self-administered at a brokerage firm of your choice.

The situation gets more complicated with employer sponsored plans such as 401(k), 403(b) plans offered by public school systems and other tax-exempt organizations, or the many other varieties of pension plans featured by private employers or various branches of government. The increased difficulty comes from the fact that the plan typically carries a very short list of investment choices, which generally does not include bull/bear funds or options. Without these choices you will have to fall back on the Long Only strategy. If the investment vehicles you have access to are listed on public exchanges you should be able to verify how they would have performed using our signals via the "Performance with individual security or index" feature on the Results page. Frequently however, the funds in your retirement plan are not publicly listed and you are left to find which best approximates the index of your choice. The name and description of the funds generally give a good clue as to what index they track. For example, a "Small Cap Growth" fund is probably well correlated with the Russell 2000. Similarly, a "Large Cap Growth" fund most likely tracks the S&P 500.

Note that the restrictions with such employer-sponsored retirement plans only apply to plans at your current employer. Most plans of past employers can and should be rolled over into a rollover IRA account at the broker of your choice. You will then have the choices and flexibility you need to fully implement the strategies as shown in the table above. As a side benefit you might also enjoy consolidating those dusty accounts into fewer that you can actually manage.

FAQ of the Week

Question: What is the IRA settlement period issue?

The issue has to do with the two transactions required for a long and short strategy on any given signal, and our ability to execute both trades on the same day. Most brokers will let you place both the sell order (to get out of your long position) and the buy order (to get into the short position with an inverse fund) on the same day, as long as the securities have "compatible settlement periods". Examples to the rescue:

Mutual fund example. You want to sell one mutual fund and buy another; no problem because both have a 1 day settlement period. In fact, if the two funds are in the same fund family this can be done in a single exchange transaction at any broker. What varies between brokers is if, and how much of an early redemption fee they charge

ETF example. You want to sell one ETF and buy another; no problem because both have a 3 day settlement period

Mixed example. You want to sell one ETF and buy a mutual fund: Problem! Most brokers will prevent you from getting into this predicament because, by the time your mutual fund requires the cash to settle your buy order (1 day later), proceeds of your ETF sale would not be available for another 2 days

This is another good reason to stick with one type of equity (and we made no secret of favoring ETFs whenever possible) for both the long and short legs of your trades.
Warm wishes and until next week.

The TimingCube Staff