Current
Signal Performance as of
Signal
Type |
Trade
Date |
Return
since issued |
|
|
|
World |
U.S. |
|
Nasdaq
100
(QQQQ)
|
Russell
2000
(IWM)
|
S&P
500
(SPY)
|
|
 The S&P 500 (SPY), Russell 2000 (IWM) and Nasdaq 100
(QQQQ) respectively gained 2.68%, 2.17% and 0.91% over the
five-day span. All three ETFs rest in-between their 50-day
and 200-day exponential moving averages (EMAs).
For its part, our World portfolio posted
a 1.96% gain this
week. The portfolio consists of the 5 top-ranked world ETFs
as of May 21, 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.
The Trend Timing philosophy is anchored on the very notion of
risk management, by participating - being long - in all substantial
up moves during major rising trends, and by benefiting - being
short - from all substantial declines, instead of suffering
from the drops with Buy and Hold. We also strongly resist tinkering
with our Model, unless there is evidence of compelling benefits.
Actually, there were only two instances in our history where
we adjusted the TimingCube
Model. The first one was in March 2004 where we added a 15%
trailing stop Cash
signal to our risk management arsenal. The other instance was
back in July 2006 where we made more adjustments, one of them
being the ability to protect us during conflicting trend patterns.
So to summarize, we currently have three types of Cash
signals in our tool box:
- from
entry point on a new signal, the 9% stop loss which is triggered
every time a signal loses more than 9%
- a
15% trailing stop which is also reset with every new Buy
or Sell signal
- a protective Cash
signal which is generated whenever our Model diagnoses significant
conflicting trend patterns.
First, let's expand a little on the trailing stop tactic. Since
our Model does not systematically call or predict tops and bottoms
(because no one reliably can), but rather identifies the major
trend shifts as they happen, a proper balance must be kept between
infrequent trading, 3 to 5 per year on average, and keeping
the downside limited. By and large our Model has kept us correctly
on course through the many pullbacks and small corrections,
and has switched us to Cash
or Sell during more
severe corrections and bear markets. A widely accepted guideline
for pullbacks is 0-10% from the recent top, corrections are
between 10 and 20%, and bear markets anything over 20%. So,
the age old question is "how much do I give back before the
next signal comes?".
This introduces the notion of "drawdown" which is the percentage
decline from the most recent top before a Sell
(or Cash)
signal is issued. Conversely, during a Sell
signal it is the amount of increase from the most recent low
before a Buy
(or Cash)
signal forces us to cover our shorts. For simplicity, we will
stick with Buy signal
examples, knowing that during a Sell
everything is the same, except upside down.
The trailing stop mechanism is basically our ultimate defense
when the market is turning against us. The tricky part is that
most trailing stops are too tight and increase the number of
trades substantially, and more often than not, switch you out
for a mild pullback and leave you stranded while the market
rebounds. Our research pointed out at that the optimum limit
for a trailing stop is 15% (which corresponds to the size of
an average correction). For those interested in the details,
here are the specifics about the 15% trailing stop Cash
signal:
- the
rule was added to our Model on March 12, 2004
- as
for most Model components, the Nasdaq Composite Index closing
price is our benchmark
- if
the Nasdaq Composite reverses by 15% from its most recent
closing high while a Buy
signal is active, or from its recent closing low while a
Sell signal is
active, a Cash
signal is issued (unless the long standing 9% from entry
point Cash signal
rule is triggered first)
- with
a Cash signal,
we liquidate all our positions and keep the proceeds in
cash or Money Market funds
- if,
after having been stopped out by a Cash
signal, the market continues to deteriorate a Buy/Sell
signal would ensue. If, however, the market recovers to
-10% or better, the signal that prevailed before we got
stopped out resumes
- ou
always know at which Nasdaq Composite level a Cash
signal will be issued: 9% from entry point, or 15% from
an intermediate bottom or top. Depending on the investment
vehicle and strategy used your actual losses could be higher
or lower and there is no hard limit on how much stock investments
could fall in a single trading day.
Another
advantage for subscribers using margin is to know that you will
never get a margin call. Before you would get a margin call
your security would have to lose 30% of its value, which can
no longer happen with the 15% trailing stop.
Looking back at the statistics of our model over its entire
backtested and live history (1989 until now) we see that the
15% trailing stop was only used twice, once in Jan 1990, and
the second time in April 2000. This is reassuring, it means
that our model is able to protect us very efficiently from significant
market reversals. This is mostly the result of the accuracy
of our Buy/Sell
signals and also the timeliness of our protective Cash
signal.
Besides individual signal drawdowns, it also important to look
at the concept of absolute equity drawdown. This time we focus
on the evolution of the net asset value of a lump sum invested
in our Long and Short strategy (we only consider
the Nasdaq Composite index here for simplification), looking
at the biggest drop in value over its lifetime. It was reached
in May 2000 as the drawdown reached a value of -
25.3% (-19.6%
when looking after 2001), which is not much when considering
the drop of -77.9%
sustained by the Buy and Hold strategy over the same period!
So in conclusion, staying safely in cash is a good place to
be right now until our Model sees a real trend emerging from
the volatile market of late.
Question:
How can I change my personal information, e.g. I have a new
e-mail address or new credit card expiration date?
We receive numerous inquiries on how to change personal information.
After logging in, select the "My Profile" navigation
tab and you'll be able to change any information in your profile
except your User ID which is a unique identifier
by which you are recognized.
You can change your Password, but remember
that capitalization matters. The Alternate e-mail
address is an additional feature which gives you increased flexibility.
The signal change e-mail notifications, and the Weekly
Update notifications if you have selected to receive
them, will be sent to both your Primary and
Alternate e-mail addresses. You can use the
alternate address for added comfort that you will not miss the
next signal, especially in these times of obnoxious spam emails.
Note that your current card number is partially filled with
X characters for security reasons. If you have a new credit
card number, just type it over the existing one without dashes
or spaces, and make sure there are no X characters left. Don't
forget to enter your new expiration date and your new Card
Verification Number (CVN). The CVN number
is very important to avoid rejection when your subscription
is renewed. Also modify the name on the card and card type if
necessary. When done, click the "Update" button
which will cause all information to be transmitted and saved
to our secure server using an encrypted session for your protection
and privacy.
Warm wishes and until next week.
The TimingCube
Staff
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