Signal Type	Trade Date	Return since issued
		World	U.S.
			Nasdaq 100 (QQQQ) Russell 2000 (IWM) S&P 500 (SPY)

Market Update

Even though there was no lack of volatility again this week, stocks did not move much overall. The main averages posted heavy losses Monday, hit by pronounced weakness in the financial sector and a rebound in oil prices. The negative action resulted in a 2% drop for the Nasdaq
Composite. Stocks then reversed course the next day to close with big gains on heavy volume, the S&P 500 jumping 2.3% during the session. The surge was largely the result of a sharp drop in oil prices, as the cost of a barrel of crude fell to $122, about $25 below the July peak. Helped by another rally in the battered financial sector, stocks posted their second straight day of gains Wednesday despite a $5 jump in the price of oil. The stock market then proceeded to move lower the last two days of the week. On Thursday, it was hit by a report showing that jobless benefits are at a 5-year high and by bearish comments from former Fed chief Alan Greenspan, who stated that the economy is "right on the brink" of a recession. Stocks lost more ground Friday, following the release of the July employment report: even though only 51,000 jobs were lost last month, less than the anticipated 75,000 decline, investors were disappointed by the fact that the unemployment rate jumped to 5.7% from 5.5%.

For the week, the S&P 500 (SPY) and the Russell 2000 (IWM) respectively gained 0.54% and 1.03% while the Nasdaq 100 (QQQQ) lost 0.86%. The Nasdaq 100 and S&P 500 are still located below both their 50-day and 200-day exponential moving averages (EMAs) while the Russell 2000 is situated in-between its two EMAs.

For its part, our World portfolio posted a 0.11% loss this week. The portfolio consists of the 5 top-ranked world ETFs as of July 18, 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.

Trend Timing School

Capital preservation

In an environment where most stock markets have lost 20% or more from the highs established during the fall of 2007, with volatility levels not seen in recent years making 2% and 3% daily moves common occurrences, we like being in cash. A drop of 20% or more just happens to be one definition of a bear market. Bear markets are dangerous times, and they are the reason we do not recommend buy and hold investing. Today we review why it is as important to avoid big losses as it is to achieve good returns.

When they are not making money during bull markets, most investors are losing money. We believe there is something to be said for not losing money. We are not talking about a small single digit decline on an ill fated trend here and there, but rather about the massive losses that the stock market delivers from time to time which can set you back years, if not decades.

The TimingCube service exclusively focuses on stock market investing and we do not recommend other asset classes like commodities, currencies, bonds or real estate to diversify or hedge against stock market losses. We achieve all-weather status by following mid-term trends with our Buy, Cash and Sell signals.

We know that as dedicated trend timers we should just sit tight with the active Cash signal, and patiently wait for the next trend to develop. Some of us, alas, are not so committed, disciplined or patient.

In fact, we know that for various reasons some did not/could not pull the Cash trigger, and are still long. Buying is always easier than selling (except at the market bottom, when everything and everybody is yelling "sell"). A very large percentage of the financial news and advice is about what to buy, and very little is about what or when to sell. Buying is exciting and fills us with anticipation and hope. It is a beginning. Selling on the other hand is final. If the trade was profitable, selling cuts off any potential of further gains. If it was a loser, selling is an admission of defeat. The temptation is always to hang on in the hope of a comeback. Hanging on to losers is always a bad proposition, but during a bear market it is a recipe for disaster.

At times one wishes for a Sell signal and wonders why the Model has not issued one. For the record, we already had one profitable Sell signal since the bear market began, from 1/7/2008 to 4/2/2008. Then, some of us are hoping for a Buy because listening to the financial news it seems obvious that the bottom is in and the next wave has begun. For the record, again, we have already experienced one ill fated Buy signal since the bear market began, from 4/2/2008 to 6/27/2008.

For anyone of the opinion that we have seen the bottom and seriously tempted to jump back in, we have a number of reasons to be cautious:

• We have an active Cash signal
• We are in bear market territory and until this phase is over there will be precious little gains to be had on the upside. Rallies are more likely to be the sharp and short-lived variety than a sustained mid-term trend, although our model will tirelessly keep looking for one worth pursuing
• We are in an election year in which, at least until November, few expect a significant move one way or the other
• The summer months, August and September in particular, statistically combine as the worst 2-month period of the year

During bull markets it is common, and generally profitable, to double down on pullbacks, or "buy the dips" as they say, because the odds favor a resumption of the primary trend. Not so during bear markets.

Looking at the 13 bear markets between 1929 and 1997, the buy and hold investor would have lost an average of 39% and waited an average of 5.2 years to recoup her/his money. These averages do not reveal how bad the worst ones were, such as an 87% loss following the 1929 crash, and over 25 years to breakeven! The reason we did not include the 2000-2002 bear market in these statistics is that, using the Nasdaq Composite index as a benchmark, investors have not attained breakeven yet. A buy and hold investor in the Nasdaq would have lost 74% from the September 2000 peak to the October 2002 bottom. And today, that same investor would still be down over 50% from the peak.

These are the reasons why we faithfully follow the trends, even if not perfect, even frustrated as we are for not making much money of late. We take what the market gives. For now the market is not delivering a predominant trend of any magnitude or duration, up or down. When there is no trend to follow, the Cash signal helps us keep our powder dry and live to fight another day. But for now, patience is the name of the game.

FAQ of the Week

Question: Is it safer to wait till the bear market is over?

During protracted bear markets some of us get frustrated by the lack of positive market action, and by losses or the absence of gains. Others get spooked by the increased volatility, even when in cash. Whatever the reason, many get tempted to simply hang up the gloves, abandon the stock market and look to come back after the bad season is over.

While we admit that it is a far better strategy than buy and hold investing, there are several issues with throwing in the towel, but none more serious than missed opportunities.

Some bear markets last several years and generate substantial intermediate trends, and profits for our Model, especially when the trends are followed with a long and short strategy. But even the Long Only strategies which simply go to cash instead of shorting the market during Sell signals benefit from intermediate Buys and and avoid sharper losses when in Cash.

The second missed opportunity occurs after the bear market has bottomed. The stock market does not publish the schedule for its seasons, and as a result you will more than likely declare that the bear market is over and it is safe to return much too late. By then the new bull market will have been raging for some time.

We may currently be on the sidelines, but we are actively participating. We are primarily in cash to minimize losses and preserve capital. With these protected assets we are ready to pounce should a mid-term trend develop, up or down.

Warm wishes and until next week.

The TimingCube Staff