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

Cumulative Returns since First TimingCube Live Signal () as of

Index	Long Only	Long Only with Margin	Long & Short	Long & Short with Margin	Buy & Hold
Nasdaq 100
Russell 2000
S&P 500

Market Update

The market often works in mysterious ways, but this was not exactly the week we expected after the recent Buy signal. Threats made by Iran over the weekend to limit its oil production got the markets started with a negative bias, which only amplified after new Fed Chairman Ben Bernanke delivered hawkish remarks on inflation. The markets ended Monday down substantially but on notably lower volume. As the week progressed we saw more of the same with other Fed officials chiming in on their vigilance against inflation, and the indices kept losing more ground.

Then on Thursday, we experienced a day in the stock market like you don't see very often, with most indices performing major reversals. In the morning an already bad week turned for the worse as interest rate fears went global with central banks around the world, from Europe to India and South Korea, raising rates which in turn sent foreign stock markets plunging. U.S. markets followed suit and headed south through mid-day when the bulls mounted a major comeback which caused a massive reversal and most indices finishing the day in the winning column. The Nasdaq Composite managed to almost erase its down slide, being down nearly 2.4% at one point to finish the day down only about 0.30%. Most impressive was the level of activity with over 3 billion shares changing hands, volume rarely seen before. Remarkably, the Nasdaq Composite only traded above 3 billion shares three times before (in 2005 and two times early 2001) and yesterday's volume was not very far from the all-time high (3,195,650,000 shares) achieved on April 18, 2001. Friday marked another slide but this time on anemic volume.

All-in-all the downside action was contained and the damage limited. For the week, the small cap Russell 2000 lost the most by dropping 4.89%, the Nasdaq 100 3.84% and the S&P 500 only 2.79%. All three indices have moved back below their long-term 200-day exponential moving average (EMA) but despite deteriorating market internals our Model still shows an active Buy signal.

Trend Timing School

Back to basics

With the recent market skittishness we are seeing growing unease, uncertainty and doubt, fear of being on the wrong side of the market and all the tell tale signs of investors at risk of letting their emotions disrupt their strategy. There are also many recent subscribers who have not yet been exposed to the various aspects of Trend Timing. Whenever we have phases when we doubt ourselves or the strategy we use to build and protect our wealth, it is useful to revisit some of the basics. There are many classic Trend Timing School articles one could read to review those time tested principles but, for expediency sake, here is a short recap.

First we should give the usual disclaimer which is that we do not know how long the current trend will last or even if the current signal will turn out to be a profitable one or not. Trend Timers know that this is not as much a copout as it is a fundamental recognition that no one can consistently and reliably predict the market and that by being trend followers we accept being at the mercy of the market, but only during the short periods when trend changes occur.

We believe that investors need to stick with a proven system for prolonged periods of time (i.e. years) in order to enjoy investment success. Much has been researched and written about how strategy-hopping and the perpetual chase for the next best investment are the main causes of chronic underperformance by the average individual investor.

Another key ingredient to the Trend Timing approach is the knowledge that the system does not have to be perfect. In fact we have long demonstrated that a system with a winning trades ratio of over 70% can consistently outperform the market over the long-term. There are safety mechanisms in place, including the Cash signal, to protect us on the down side. We never had a Cash signal triggered but, just to be sure expectations are properly set, that safety valve lies at 9% from our entry point.

Always keeping perspective helps a lot as well. We like to remind our subscribers of the common definitions for market reactions: pullbacks under 10%, corrections between 10% and 20%, and bear markets beyond that. While no one likes to see the markets go against their position, considering that our system does not attempt to react to every pullback or even every correction, the current declines are very modest. Of course it always seems worse at the beginning of a signal when we are most vulnerable but it does not change the fact that markets do not go up or down in a straight line.

This is as good a place as any to remind our subscribers that leverage should be used very carefully and in measured doses. We frequently hear about investors using full margin with everything, all the time, and then scream like banshees during weeks like these. Leverage works both ways, and if you are not willing to lose it, you should not do it. For the average investor we recommend no more than 20% leverage.

There have been no changes to our Model. Signals are often unexpected and counterintuitive, and many signals come as surprises. We intentionally do not disclose the details of our Model for obvious reasons, but this adds to the mystery surrounding some of the signals. Historically, the good buy and sell points issued by our Model come at times when most investors would not have dared make the call. This is why it is so important to adopt an emotionless approach and not attempt to second guess individual signals. The corollary to this is that you cannot judge a signal until it is closed. Just as we recommend not to get overly exited with gains mid-signal, you cannot take any short-term paper loss at face value. Yes it could get worse, but it could also get better as has been the case with several past signals which experience temporary set-backs before moving on to be winners.

We are in this for the long haul. Our Model detects and follows mid-term market trends that last on average 3 to 4 months. The TimingCube service is intended for long term investors, not short term traders. We couldn't care less about the daily or even weekly starts and stops. We believe that watching daily financial news is highly counterproductive and even harmful to your ability to stay the course (unless you watch it purely for entertainment, in which case it can be hilarious at times ).

While recent market action has some investors spooked, it is very tame by historical standards. In fact, the last couple of years have seen extreme lows in volatility. Chart 1 below shows the jump in market volatility since early May with the CBOE Nasdaq Volatility Index (VXN) at levels not seen in years. To put things in perspective, in 2000 and 2001 the index was routinely above readings of 80, or over three times what we have today. As Trend Timers we look forward to a period of increased volatility because they signify the return to stronger, more profitable trends.

Chart 1: Nasdaq Composite volatility jump


Maybe most importantly, Trend Timing helps you manage your emotions. If you let it, it gives you the luxury of not suffering through the minute by minute and hour by hour agony of days like yesterday. Too many investors, including too many Trend Timers, spend a good part of their days glued to the financial news and data feeds. You don't need it. Your health is affected by it. And most importantly, your investment results are not improved by it. By trusting the TimingCube system you can achieve superior long-term results without worrying about what the market is doing or why it is doing it. Participating in all the major moves and avoiding significant downturns is how Trend Timers build their wealth, and keep their sanity.

FAQ of the Week

Question: Why do you use the open price to compute your results?

Because it is how our system is designed to work. We issue signals in the evening after the close of the market and subscribers trade at the following market open. This is the default mode of operation for anyone trading ETFs or options. All of our results use the index values at the open on the Trading Day to best approximate the performance which can realistically be achieved, not counting fees, commissions or taxes.

We understand that many subscribers use mutual funds instead of ETFs or options and can incur up to a one day lag (Rydex offers a mid-morning pricing option but generally mutual funds are only priced once per day, at the close). At times, as with this most recent trade, the one day lag can be costly. We have written extensively about how these mutual funds compare with trading ETFs (see A short term review of bull/bear mutual funds and More on ETFs versus bull/bear mutual funds. For those who would like to know the historic performance when using these mutual funds we provide the Performance by Bull/Bear mutual funds feature on the "Results" page.

Warm wishes and until next week.

The TimingCube Staff