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

Market Update

Stocks remained essentially flat the first two days of the week. After moving higher Wednesday morning, they then reversed course as interest rates worries resurfaced, sending the yield on the 10-year note to 5.15%. Financial stocks were further hit by lingering concerns over the subprime mortgage market. The major indexes succombed to the negative mood and finished lower on the day. The markets were able to bounce back Thursday, helped by a report from the Philadelphia Federal Reserve showing that manufacturing in the region reached a 2-year high. A rally in technology stocks provided added fuel, as several upgrades in the semiconductor sector propelled the influential SOX index to a new 13-month high. Stocks were unable to hold onto their gains, as they fell again Friday. Higher oil prices combined with ongoing nervousness about interest rates and hedge-fund trouble related to subprime mortgages to send the market lower. Please note that Friday's volume was artificially high: it picked up significantly going into the close and in after hours as fund managers adjusted their portfolios to account for the annual Russell 2000 index rebalancing. Trading volume during the regular session was actually tracking lower than the day before.

The Nasdaq 100, Russell 2000 and S&P 500 respectively lost 1.05%, 1.58% and 1.98% on the week. All 3 indexes remain above both their 50-day exponential moving average (EMA) and 200-day EMA.

For its part, our World Index Ranking portfolio outperformed the US averages as it posted a 0.03% gain this week. The portfolio consists of the 5 top-ranked world indexes as of May 25, which marked the beginning of the current 4-week holding period. The World Index Ranking portfolio is being rebalanced today, as the current 4-week holding period is now over.

Our current Buy signal remains in effect.

Trend Timing School

ETFs top 500 billion in assets

Yes, by our count, the total value of assets held in U.S. ETFs has topped half a trillion dollars, or is not very far from it! The ETF juggernaut is marching on and the explosion in total assets is the best testimony to rapid adoption by individual investors and investment advisors alike. Since the launch of the first Exchange Traded Fund (ETF) in 1993 - the SPDR S&P 500 ETF (SPY) which also is the largest at some $61B - there has been a growing swell of products and variety. In fact, the flow has been accelerating, with more new funds introduced during the last six months (nearly 170, over 30% of all funds) than in their first 10 years of existence. Index ETFs, to distinguish them from their distant cousins the closed-end funds, now number well over 500 with more coming every week. It has only been a few months since we did an ETF review, but there has been so much activity that a refresher is in order.

To illustrate our point, just last week, PowerShares the company built around the now famous PowerShares QQQ fund (QQQQ), the Nasdaq-100 index fund, launched a series of new ETF products (see complete Press Release here):

• PIO - PowerShares Global Water Portfolio
• PBD - PowerShares Global Clean Energy Portfolio
• PFA - PowerShares Dynamic Developed International Opportunities Portfolio
• PUA - PowerShares Dynamic Asia Pacific Portfolio
• PEH - PowerShares Dynamic Europe Portfolio

At first glance the announcement simply adds to the rising tide of new ETFs. A closer examination reveals the trend for ever expanding ETF types and categories, and for higher degrees of specialization. ETF companies like PowerShares now pride themselves, and attempt to differentiate themselves, with the sheer number (now at 91) and variety of fund choices they offer.

ETFs were initially created as proxies for broad stock market indexes, like the S&P 500, but have become increasingly specialized and indexes are being invented on the fly to define and sanction ever shrinking niches. To understand the shifting ETF landscape it is imperative we first review the various ETF types and categories:

ETF categories (the dimensions of specialization)

Asset Class	Style	Market Capitalization	Geography	Industry Sector
Equity	Growth	Large	Country	Aerospace & Defense
Long	Value	Mid	U.S.	Biotech
Short	Dividend	Small	Australia	Communications
Leveraged		Micro	Austria	Consumer goods discretionary
Fixed Icome			Belgium	Consumer goods staples
U.S./Foreign			Brazil	Energy
Government/Corporate			Canada	Financial
Various maturities			China	Gold miners
Commodities			France	Healthcare
Diversified			Germany	Industrial
Gold			Hong Kong	Internet
Silver			Italy	Materials
Currencies			Japan	Natural Resources
Japanese Yen			Malaysia	Networking
Euro			Mexico	Oil Services
Swedish Krona			Netherlands	Pharmaceuticals
British Pound Sterling			Singapore	Real Estate Builders
Australian Dollar			South Africa	Retail
Swiss Franc			South Korea	Semiconductor
Canadian Dollar			Spain	Software
Mexican Peso			Sweden	Technology
U.S. Dollar bull/bear			Switzerland	Transportation
Real Estate			Taiwan	Utilities
REITS			United Kingdom
			Region
			Emerging Markets
			Europe
			Latin America
			Pacific
			Pacific ex-Japan

The first grouping is by Asset Class. Most investors equate ETFs with stock market indexes but it turns out that many do not invest in equities at all. You can buy debt securities with bond funds, commodities, currencies and even real estate. Want to bet against the U.S. dollar? Simply buy the PowerShares DB U.S. Dollar Index Bearish (UDN )! All of these asset classes are very interesting but fundamentally unrelated to our Trend Timing which concerns itself exclusively with broad stock market trends. Just within the equity category we have plenty of choices, now including the short and leveraged options pioneered by ProShares (See "What are ProShares ETFs?" and "What is an UltraShort ETF").

While we are on the subject, the ProFunds Group announced earlier this month that their ProShares families of ETFs passed the $6 billion in assets mark less than a year after its launch. With now over 50 ProShares ETFs, they also claim to be the fastest growing family based on asset percentage growth. Although that growth is impressive, the size is dwarfed by the big fish in the rapidly expanding ETF pond. According to a recent Bloomberg article "Barclays Global is the world's largest ETF manager, with assets increasing an average 86 percent annually in the past six years to $363 billion." This represents a 70%+ market share which might not yet qualify as monopolistic domination, but when the next few firms are added to the mix, we dangerously approach oligopoly status for the industry, which usually spells trouble for the consumer down the road. But we digress, back to ETF categories.

Style, in stock investing, has to do with the growth or value orientation of companies. More recently, a new style variation was added focusing on so-called "high-yield" stocks which pay high dividends. Market Capitalization helps group companies by their size, and they are called variously: Large-cap, Mid-cap, Small-cap or Micro-cap.

In the "old days", when there were only a few funds like SPY and QQQQ tracking U.S. market indexes, very few people realized they were investing in single country funds. With the explosion of ETF varieties the geographic focus is fertile ground. By definition, geographic funds are diversified from the stand point that they do not focus on a style, company size or industry sector, but they are geographically non-diversified. While most country funds tend to be well correlated, history has shown that there are large variations in relative strength. Thanks to the World Index Ranking we can now follow the broad market trend AND target the strongest markets.

The last major ETF grouping, which is also exhibiting the most new fund introductions, is by industry sector, with ever increasing granularity. The table only lists the main categories but more are added all the time, including new sub-categories as well as intersections of sub-categories. We count nearly 80 distinct types. Maybe, when we start developing allergies and rashes from all this ETF proliferation, will it finally be a good time to invest in the HealthShares Dermatology & Wound Care ETF (HRW)!

Alas for the fund industry, boosting the number and variety of product is an expansion strategy with rapidly diminishing returns. We do not believe that the explosion in the number and type of ETFs can continue. New potential funds face mounting difficulties in finding the required initial funding. Why would anyone want to fund the 21^st bond ETF?

The main point for us Trend Timers to remember is that we need to stay focused on broad market ETFs. And keep dreaming about ways to exploit the specialized ETFs which are poorly correlated with the broad stock market we track.

FAQ of the Week

Question: Do the TimingCube and TradeGuru services overlap?

No, the TimingCube and TradeGuru services are completely separate and use radically different models and strategies. TimingCube implements a purely technical trend following model to invest in broad U.S. and World market indexes through their ETFs. TradeGuru on the other hand performs top down selection of U.S. traded companies based on valuation and leadership fundamentals such as earnings growth. See the point by point comparison below. Comparison of TimingCube and TradeGuru services

	TimingCube	TradeGuru
Style	Index investing	Stock picking
Strategy	Trend following	Special stock opportunities
Investment selection	Purely technical	Purely fundamental
Market side	Long/Short	Long only
Investment vehicles	Market indexes via ETFs, mutual funds, options	Individual stocks, options
Geography	U.S./World	U.S.
Trading frequency	3-5x per year	12x per year

The two services are in fact complementary and we always recommend diversification of strategy over putting all your eggs in one basket. And in case imaginative subscribers get tempted to outsmart themselves by applying the TimingCube long/short signals to the TradeGuru stock selections, we should stress that mixing them is not recommended (because it does not work). Note that there are only 8 days left (through June 30) on TradeGuru's Special Invitation to TimingCube subscribers. Make sure to try our risk-free offer and get a 20% discount off the regular yearly subscription, or $399.95. Go to http://www.tradeguru.com/special-tc/ for details and to sign up with the discount.

Warm wishes and until next week.

The TimingCube Staff