TimingCube - Five-year TimingCube signal anniversary! - International diversification, world markets relative strength

Current Signal Performance as of

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 major averages posted big gains this week, following the decision by the Federal Reserve to raise the funds rate a 17^th consecutive time to 5.25%, as had been widely anticipated. In its accompanying policy statement, the Fed noted that economic growth is moderating. Market participants viewed the statement as dovish and interpreted it as meaning that the Fed might soon pause its tightening campaign. Stocks jumped as a result, with the major indices posting some of their biggest gains of the past three years on heavy volume. The explosive move, coupled with better behavior by the Nasdaq Composite over the past few weeks, resulted in our Model issuing a new Buy signal after the close Thursday. For the week, the Russell 2000 and S&P 500 respectively gained 5.00% and 2.06%. Both indices are now back above their 50-day and 200-day exponential moving averages (EMAs). As for the Nasdaq 100 , it closed the week 1.56% higher. It remains below both its 50-day and 200-day EMAs. We now have a Buy signal in effect.

Trend Timing School

Five-year TimingCube signal anniversary!

(Hold the anniversary thought for a minute, if you will). With the back-to-back losing signals we owe it to each and every one of you our views and attempt to alleviate some fears. The Market Update above has provided the economic context which precipitated the latest Buy signal this week but many want to know why the last couple of signals seemed so wrong and whether the Model has outlived its usefulness.

First of all, we have not tweaked the Model. We are running the same purely mechanical Model which is live since June 18, 2001 and backtested since 1989. Our recent misfortune can be attributed to one thing: the erroneous Buy signal issued on May 31^st, which actually cut short our perfectly timed May 11 Sell signal. As the mid-term down trend rapidly resumed our Model recognized the continuation of the previous down trend and issued a Sell on June 13^th. Without the false Buy signal and the attendant Sell, the mid-May Sell signal would have been quite profitable by now. Alas, as they say, with ifs and buts� Our winning trade ratio still stands at 66%+ and we see no reason why it would change.

We do not believe the Model is broken as explained below, but we do not wear blinders either. We are firm believers in continuous improvement and we are carefully studying what happened with this false Buy signal and seek to learn some lessons to possibly improve the Model. Any enhancement must meet our stringent tests including improving the results over our entire live and backtest history.

Also, the message we posted last night on the "Current Signal" page was somewhat misleading. The "Some trend changes are subtle; others seem to hit you on the forehead with a two by four" sentence was intended to mean that some signals are self-evident to most people, not that they are somehow stronger signals than others. Interest rates or Fed statements play no part in our Model, they were mentioned exclusively as the obvious trigger for investors to aggressively buy up the market yesterday.

Now, back to the anniversary but, not to worry, we are not about to bore everyone with an endless recapitulation of all the great things we have done over the last five years. We realize the majority of subscribers has started more recently and is a little more concerned about the last two years or the last six months. Before we get to that, we would be remiss not to share with all subscribers, recent ones in particular, the real live results of applying the Model to all markets that came along during 5 years, be they bears, bulls or trendless. See Table 1 below. The key message is that with a simple Long and Short strategy, no leverage, the 5-year return on most U.S. indices is over 200%. Note that these indices do not even make the top 10 when looking at the 21 major world indices we listed in last week's Trend Timing School article.

Table 1: TimingCube 5-year returns, U.S. markets

Index	Long Only	Long Only with Margin	Long & Short	Long & Short with Margin	Buy & Hold
Nasdaq 100	96.95	239.85	249.18	844.28	-7.99
Russell 2000	145.53	397.92	264.12	904.96	46.45
S&P 500	61.96	146.11	135.69	396.78	4.53

Never mind the 5-year performance, what have you done for me lately? Ever since early 2004 (see January 23, 2004 Weekly Update) have we begun preaching the virtues of diversification, and the fact that U.S. markets were severely lagging their international counterparts. Yes, the U.S. markets find themselves at the same levels they have been at for over 2 years. The point is that other markets have performed substantially better as shown in Table 2 below which shows the best performers since the beginning of 2005, and the U.S. markets ranked 17, 19, and 21 of 21.

Table 2: TimingCube returns since 2005, World versus U.S.

Index	Long Only	Long Only with Margin	Long & Short	Long & Short with Margin	Buy & Hold
India	85.16	177.12	104.70	224.29	60.10
Austria	79.33	175.72	102.33	241.16	54.07
South Korea	67.70	148.59	90.12	212.56	44.55
Nasdaq 100	-3.97	-9.19	-5.10	-11.77	-3.29
Russell 2000	13.60	24.54	15.08	26.73	11.22
S&P 500	4.35	7.90	3.60	6.07	4.81

The main lesson we learn from all this is that the Model is still working fine. Table 2 and the 2006 year-to-date Table 3 below clearly demonstrate that the Model is detecting the broad intermediate trends well with the TimingCube strategies substantially outperforming buy and hold (on the indices that actually show some movement). The U.S. indices have simply been in a narrow chop and until this situation changes we should stay strongly diversified elsewhere.

Table 3: TimingCube returns 2006 year-to-date, World versus U.S.

Index	Long Only	Long Only with Margin	Long & Short	Long & Short with Margin	Buy & Hold
India	18.61	29.61	19.70	26.90	12.84
Hong Kong	10.14	19.37	9.84	17.82	9.59
Australia	9.17	17.43	10.84	20.44	6.93
Nasdaq 100	-5.08	-10.06	-5.74	-11.67	-4.78
Russell 2000	6.49	11.39	4.70	6.98	7.64
S&P 500	0.58	0.82	-0.81	-2.20	1.76

While our Model is not perfect, we are proud of our 5-year track record, as well as more recent history, and we are grateful to the thousands of subscribers who are keeping the faith in trend following and TimingCube. We strive to offer the best trend following investment service in the industry and this encompasses all aspects of a long term wealth building system, high performance timing signals, clear and complete information, rich educational content and unequaled subscriber support. Thank you for your continued support.

FAQ of the Week

Question: Does your Model pinpoint the strongest index?

After reading last week's Trend Timing School article (see "Investment vehicle smorgasbord") about the many investment vehicles applicable to our system, astute subscribers have inquired as to which of these are currently the best to be in. After this week's article (see Five-year TimingCube signal anniversary above) which further highlights the wide differences in relative strength between markets, many more are bound to ask as well.

Our Model identifies the broad mid-term market trend (the direction) with which major world markets correlate, but it does not measure the relative strength (the amplitude) of individual markets. This is why we have so far recommended diversification in order to lower risk and increase performance. International diversification in particular has been extremely rewarding over the last five years.

Not content with blind diversification, we have been working for well over a year on an index ranking feature to complement our directional Model. With it, one not only knows we have a Buy signal, but also which indices carry the highest momentum and are likely to outperform in the short term. The results currently look very promising, but while we are excited about it, we must first complete our research and backtesting. We do not have a firm date for availability, but it will be in the not too distant future. Stay tuned.

Warm wishes and until next week.

The TimingCube Staff