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

Market Update

As we are becoming accustomed to, headline news has been driving market volatility, not just from day to day, but hour by hour. Monday and Tuesday, despite impressive intra-day swings, resulted in a narrowly mixed outcome in lackluster volume. This all changed on Wednesday as the negative news compounded to send markets sharply lower. Investors had digested earlier comments by Federal Reserve Chairman Ben Bernanke which acknowledged increasing inflationary pressures caused by exploding commodities and energy prices. The Fed's hawkish tone and promise to be vigilant in fighting inflation left investors with a sense that the Fed's rate-cutting campaign is over and, that they may even be thinking of raising them. As if to confirm, oil prices unexpectedly surged in tandem with gas prices which set a new record high over $4 for the average U.S. gallon. Making matters worse, the Semiconductor Industry Association cut its forecast for 2008 worldwide chip sales growth to 4.3% from 7.7%. The Nasdaq 100, heavy with chip makers, suffered the most of the major indexes by shedding 2.2% on the day. Then, when things looked bleakest, markets reversed course and mounted a sharp recovery rally, albeit in declining volume, to nearly erase earlier losses. The Dow Jones Industrials continued to display its leadership by ending the week in the green with a 0.80% gain.

The Nasdaq 100, S&P 500 and Russell 2000 posted respective losses of 1.22%, 0.05% and 0.91% on the week. While the S&P 500 remains located below both its 50-day and 200-day Exponential Moving Averages (EMAs), the Russell 2000 has moved back above its 50-day average and the Nasdaq 100 has now reclaimed both its averages.

For its part, our World Index Ranking portfolio demonstrated its higher volatility by significantly underperforming its U.S. counterparts with a loss of 3.90% for the week. 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

Diversification

Diversification is a key tenet of the Trend Timing risk management discipline and should be part of every investor's strategy. The simple definition of diversification is to include an assortment of investments in a portfolio in order to limit the exposure to any one of them going bad. There are however many types of diversification:

Asset diversification. This is the theory that one should place their financial assets in diverse areas such as real estate, stock market, collectibles, precious metals, etc. The TimingCube service focuses only on the stock market and we do not offer recommendations along these lines.

Strategy diversification. Since no system is perfect, this seems like a wise proposition. We frequently get asked "how much of my money should I invest according to the TimingCube system?". The answer is highly personal, and since it depends on your specific circumstances, your style and risk tolerance, and your level of trust in our system, we cannot answer the question for you. For our own investments, we refuse to risk any money on strategies that have poor track records, such as Buy and Hold. Instead, we follow our own signal with the majority of our moneys using a blend of strategies as described in the "Strategies" section of our Our Service page.

Portfolio diversification. The conventional wisdom that evolved in tandem with Buy and Hold is that you should spread your portfolio amongst negatively correlated (i.e. which move in opposite directions) investment vehicles, so that when one goes down - like your stocks during a bear market - others will go up. We reject any method which guarantees mediocre returns by watering-down the best performers with losers.

International diversification. We advocate the Trend Timing Model which enables us to commit substantially all of our serious money to the stock market, and benefit in both up or down markets. For diversification we favor index-tracking investment vehicles which represent broad baskets of stocks, we prefer to distribute amongst several indices. Our research has verified the high correlation between major stock market indices - both US and International - when applying our Trend Timing Model. While the indices move in unison, they represent different facets or segments of the broad market and exhibit changing relative strength over time. This is where the World Index Ranking service comes handy to help us diversify by investing in markets that show the strongest momentum and potential for superior returns. Coupled with the TimingCube's Trend following Buy/Sell directional guidance it results in a powerful tool to achieve superior returns.

For some investors it may not be enough to invest in broad international markets, they may also be tempted to add to the diversification by investing in specific industry sectors or asset classes like commodities, real estate etc... Or buy some gold (through the GLD ETF for example); just be aware that these sectors tend to be non-correlated with the broad markets, and thus with our signal. At times, when they do well, some funds may seem to greatly benefit from timing with our signal but this is pure coincidence. So if you want to invest in some of these funds to diversify your portfolio, we would recommend that you seek the help of a system like ETFTide which encompasses not only broad world equity markets but also ETFs investing in specific industry segments as well as non-stock asset classes such as bonds, commodities, currencies and real estate. This system does not time the market but during prolonged stock market weakness, ETFTide will rotate into the non-equity classes which outperform at such times.

As a conclusion, we would say that there are many factors to consider in the search of a "better investment" but, as you may have noticed by now, we definitely encourage splitting yours amongst vehicles that track several major indexes and not only focus on US domestic markets.

FAQ of the Week

Question: Are ETF distributions and splits accounted for?

The short answer is yes. Unlike indexes which ignore dividends and short/long-term capital gains distributed by their underlying companies, the IRS mandates that ETFs distribute substantially all their income and capital gains at least annually. The net effect is that from time to time, when the dividends are paid, the ETF price appears to drop in comparison with its index. For shareholders these distributions are not losses, since they receive the cash, but someone tracking performance purely with daily prices could easily conclude that the ETF is lagging its index. This is why all the ETF performance figures we publish on our site, so far mostly confined to the "Performance with individual security or index" tool on the Results page, utilize so-called adjusted prices. As we alluded to last week, we are preparing a major upgrade to our web site for introduction in the near future which will shift the emphasis from indexes to ETFs. Applying dividend and split adjusted historical prices to our ETF results is another way to reflect more accurately the returns our subscribers can realistically achieve when investing in the recommended ETFs.

For a more in-depth review of the mechanics and terminology associated with distributions and splits, including some actual examples, please read "ETF dividends and distributions".

Warm wishes and until next week.

The TimingCube Staff