What's new this week?

• Updated the Quarterly U.S. and international Performance Reports on the "Results" page
• Posted a new Wall Street Journal article on the "In the News" page
• Added the electronic version of the recent Fund Action article on the "In the News" page

Signal Update Current Signal Performance as of Signal Type Trade Date Index Return since issued Nasdaq 100 Russell 2000 S&P 500 QQQ 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 QQQ Note: QQQ returns are included for continuity sake. Market Update Markets kept falling this week. Despite generally good earnings news, more companies, including Microsoft, have lowered expectations for the third quarter. This implies that the economy may be decelerating, pushing prices down in the process. All major indices are now in a firm downtrend, as they all stand below their 200-day simple moving average. Subscribers will remember that the mid-May rally occurred on low volume, clearly showing the lack of conviction from investors. Since the market started falling early July, volume has increased significantly, indicating that large institutional investors are now net sellers of stocks. This is not good news for people who hold long positions. For the week, the Nasdaq 100, the Russell 2000 and the S&P 500 respectively lost 1.20%, 2.93% and 1.38%. The week's action has reinforced our active Sell signal. It should be noted that the Nasdaq Composite's 10-day exponential moving average (EMA) finished the week well below the 200-day EMA, which meets our definition of a bear market. This means that we now are officially in Quadrant 3, defined as a Bear/Sell combination (please refer to our for more information on Trend Timing quadrants). Trend Timing School Index investing If you paid attention to the financial news media lately (but we hope you have much better things to do with your time ) you must have caught wind of the latest investment industry buzzword: "index investing". It is funny how the more things change the more they stay the same! This great new invention will turn 30 years old next year. Since index investing and Trend Timing have some resemblance it is important to clarify how they relate and how they differ. The conventional definition of index investing is "an investment technique which consists of buying the market as a whole instead of individual stocks, in which index funds are the preferred investment vehicle". John C. Bogle of the Vanguard Group is the visionary behind the index investing concept. Back in 1975 he postulated a revolutionary theory, that in order to at least match market returns over long periods of time it is best to invest in all the stocks making up a broad market index. That same year he went on to make history by creating the first index mutual fund, the Vanguard Index Trust 500 fund built on the S&P 500 index components, which now is not only famous but the largest mutual fund in the world. It has since become common wisdom that most stock portfolios, including the ones created by professional advisors for their individual clients and the ones making up actively managed mutual funds, fail to match average market returns. For example, in the past 10 years, more than 75% of equity mutual funds have underperformed the S&P 500. It is a sad fact that the average investor has not been given the good sense to stop plowing his/her hard earned money into the thousands of chronically underperforming funds and adopt index investing instead. The benefits of index investing include diversification, simplicity, low cost, transparency and matching the market index returns. As discussed in the July 2, 2004 Trend Timing School editorial, these advantages have only increased and become even more accessible with the advent of index ETFs. So then, are index investing and Trend Timing not one and the same, you may ask? No, there is one difference and it is a big one. Traditional index investing entails Buy and Hold. As we contend frequently in these pages, successful long-term wealth building depends on participating in all significant market rises and on avoiding - or even benefiting from - major corrections and bear markets. Thus, an alternate Trend Timing definition could be "index investing meets trend following". FAQ of the Week Question: In how many countries is TimingCube used? Fifty! Not surprisingly the largest subscriber concentrations are in the U.S. and Canada, but the sheer number and diversity of countries where Trend Timers can be found is a vindication of our globally correlated Model. Argentina Greece New Zealand Australia Hong Kong Norway Austria Indonesia Russian Federation Bahrain Israel Saudi Arabia Belgium Italy Singapore Bermuda Jamaica South Africa Bolivia Japan Spain Brazil Jordan Sweden Canada Kuwait Switzerland Chile Kyrgyzstan Taiwan China Latvia Ukraine Colombia Lebanon United Arab Emirates Czech Republic Luxembourg United Kingdom Denmark Malta United States Finland Mexico Venezuela France Monaco Virgin Islands (U.S.) Germany Netherlands Warm wishes and until next week. The TimingCube Staff