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

Market Update

It has been a week in which the major averages started poorly but finished on a strong note. A sell-off in Chinese stocks prompted investors to book profits Monday, resulting in a 1% daily loss for the Nasdaq Composite. The selling intensified the next day despite positive economic news, with the ISM index of manufacturing activity coming in at 52.9, well above expectations, and pending home sales reaching a two-year high. If stocks intially rose on the news, they quickly turned around to finish the session with significant losses as illustrated by a 2.2% retreat on heavy trade for the S&P 500. Stocks found stability the next day and started to recover Thursday with a last hour rally that allowed the S&P 500 to finish 0.9% higher. The Labor Department reported Friday morning that 216,000 jobs were cut last month, less than analysts expected, and that the unemployment rate rose to 9.7%, its highest level in 26 years. Encouraged by the fact that fewer jobs were lost in August than in July, investors decided to keep buying, sending the Nasdaq Composite 1.8% higher on the day and allowing the index to recoup most of the losses it had experienced at the start of the week. Please note that U.S. markets will be closed Monday for Labor Day.

The Nasdaq 100 (QQQQ), S&P 500 (SPY) and Russell 2000 (IWM) respectively lost 0.20%, 1.28% and 1.72% over the five-day span. All three ETFs remain located above both their 50-day and 200-day exponential moving averages (EMAs).

For its part, our World portfolio outperformed its U.S. counterparts this week as it posted a 1.10% gain. The portfolio consists of the 5 top-ranked world ETFs as of August 14, which marked the beginning of the current 4-week holding period.

Our current Buy signal remains in effect.

Trend Timing School

What are these performance numbers?

Since our early beginnings we have always strived for total transparency when it comes to reporting results. In doing so, we have continuously raised the bar in the investment newsletter industry, both in the amount of information provided and in the variety of reporting methods offered.
The downside of abundance is that inevitably some of us get confused with all the terminology and, even more, by the respective calculations. The good news is that our results have been checked and re-checked thousands of times and no one has ever found a problem with them. So, unless you really feel an urge to brush-up on your math skills, you can leave the heavy lifting to us. You do not have to be a math major to be a good Trend Timer!

For the curious minded, here are the definitions of terms frequently encountered with investment returns.

Annualized return
This is the one number which, if used as the return each and every year during a multi-year time period, would have resulted in the cumulative return over that period, as if it had grown at a steady rate.

Annualized return formula:
   annualized return = ((1 + cumulative_return) ** (1 / years)) - 1

where * * denotes exponentiation or power of

Don't worry; it gets simpler with real numbers.
For example, we invest $10,000 for 2 years.
The first year we have a great return of 80%, the $10,000 grows to $18,000.
The second year is not nearly as good and our investment loses 20% to end up at $14,400. The multiplier is 1.44 which means that the cumulative return is 44%.
To get to the annualized return we need to find the one consistent return number which when used during the 2 years would have grown the $10,000 to $14,400. Using the formula above, we take 1.44 (1 plus the cumulative return) to the power of 1/2 (which happens to be the same as the square root) which is equal to 1.20, minus 1 which gives us an annualized return of 0.20 or 20%.
To verify, $10,000 times 1.20 is $12,000, times 1.20 is $14,400. Bingo!

So why not simply use the average yearly return instead, you may ask.
Because it does not get us to the correct cumulative return.
Using our previous example and the average yearly return formula below, the average yearly return is 0.80 plus -0.20 equals 0.60, divided by 2 equals 0.30 or 30%. But $10,000 times 1.30 is $13,000, times 1.30 is $16,900, which is obviously the wrong answer, and this is why they invented the nifty annualized return. Just one more reason why we feel yearly returns are misleading.

Average yearly return
This is the simple arithmetic average of the yearly returns over several years. We do not favor or use this metric for the same reasons we do not favor the yearly returns.

Average yearly return formula:
   average yearly return = (yearly_return_1 + yearly_return_2 + ... + yearly_return_n) / n

Compounded return
This is identical to the cumulative return explained below

Compounded Annual Growth Rate (CAGR)
This is identical to the annualized return explained above

Cumulative return
We like this metric as it best represents what an initial investment will grow to over a period of years, because it factors in the compounding effect of reinvested gains. The returns of individual trades during the entire period are compounded using the following formula.

Cumulative return formula:
   cumulative return = ((1 + trade_1_return) * (1 + trade_2_return) * . . . * (1 + trade_n_return)) - 1

Yearly return
The investment return in a given calendar year. Unlike annualized return, yearly return represents the actual performance for the year. This is very similar to the Annual Percentage Rate (APR) you hear about when you take out a loan. The primary difference is that you pay the APR interest but you receive the yearly return. We do not favor yearly returns because they are misleading and totally ignore the compounding effect so important to long term Trend Timers. Because it is a widely used financial metric we do publish our historical yearly returns. They can be found at the bottom of the "Results" page.

Yearly return formula:
   yearly return = (end_price / begin_price) - 1

Congratulations to the few valiant souls that have made it this far without dozing off!

FAQ of the Week

Question: How can I see the effect of the TimingCube signal on a particular index or fund?

Have you ever wondered how your investment would have performed if you had followed the TimingCube signal on a particular index or fund? The answer is at the bottom of the "Results" page.

The "Results" page displays performance data for the following ETFs: QQQQ, SPY, and IWM respectively for the Nasdaq 100, the S&P 500 and the Russell 2000 indexes (not to mention the World strategy, which uses the Top 5 world ETFs rebalanced every four weeks). But if you are interested in another index, stock or ETF, you can obtain the corresponding performance results with the "Performance with individual security" function at the bottom of the "Results" page. Simply enter your ticker symbol and click "Go" As an obvious remark, remember not to use this tool with inverse ETFs or funds, since they move opposite to the market!

Be aware that this feature should not be seen as an encouragement to apply the TimingCube signal to any kind of stock or fund. This is more for education purposes, and should be used as a validation tool for measuring the correlation of a particular stock or fund with our Trend Timing system.

Warm wishes and until next week.

The TimingCube Staff