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 horrendous holiday-shortened week for the markets as all major averages broke down, in effect terminating the uptrend that had been in place since mid-July. With oil prices dropping almost $6 per barrel, stocks initially rose Tuesday, taking the S&P 500 1.6% higher intraday. The gains quickly evaporated, however, as the market turned around to close with losses on brisk volume. Weakness in shares of semiconductor companies spilled over to the tech sector Wednesday and caused a 0.7% daily loss for the Nasdaq Composite , with the other indexes performing slightly better. Stocks plummeted in earnest the next day on heavy trade, with all major averages losing 3% or more. Investors were spooked by disappointing August retail sales and an unexpected jump in weekly unemployment claims. The rapid degradation of market action in just a few days caused our Model to issue a Cash signal after the close Thursday. Please note that a Cash signal was issued instead of a Sell because oversold readings within the Model indicate that a rebound is as likely as further deterioration at this point. Stocks continued their fall early on Friday, after the government announced that the unemployment rate reached 6.1% in August, the highest level since late 2003. The main indexes then proceeded to regain some of the lost ground, allowing the S&P 500 to finish in the black while the Nasdaq Composite closed the session with only a modest loss. The rebound was certainly in large part due to short-covering, a phenomenon often seen during market downtrends.

For the week, the Nasdaq 100 (QQQQ), Russell 2000 (IWM) and S&P 500 (SPY) respectively lost 5.79%, 3.02% and 3.39%. All 3 ETFs are now located below both their 50-day and 200-day exponential moving averages (EMAs).

For its part, our World portfolio posted a 5.77% loss this week. The portfolio consists of the 5 top-ranked world ETFs as of August 15, 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.

We now have a Cash signal in effect.

Trend Timing School

Catastrophes and stock market trends

With the approaching sad anniversary of 9/11, so is the hype in the media; fortunately this year the US presidential race is taking over the headlines, removing some of the pressure and the resulting fears. History is littered with catastrophic events, natural or man-made, but also with the failures and missed opportunities of people too frightened about the future to live their lives to the fullest.

As investors it is not unusual to try to imagine a range of possible scenarios, most of them bad, and try to anticipate their impact on the markets and our holdings. Catastrophobia (don't bother looking it up in the dictionary, we just thought it sounded cute) is a somewhat cyclical obsession.

Conspiracy theorists routinely claim that the government warnings and the ensuing media response is orchestrated to keep the masses busy worrying about some external threat instead of their own day to day realities. Cynics assert that the reason for the catastrophe hype is that fear sells, that the news media are all over it to boost ratings, and that advertisers exploit it to sell you everything from financial newsletters, insurance, gold coins and guns. And yes, with this editorial we are to some extent guilty of worsening the fear monger statistics. But we mean well!

Regardless of why this is currently a hot topic, the only certainty is that sooner or later the next tragedy will hit. Whether it is an earth quake, an epidemic, a political assassination, or the much predicted terror strike, we know it will be horrific. Markets have a long history of dealing with crisis of all sorts, and typically they respond extremely well. So what is the impact on our investments likely to be? Study of past incidents shows that most events trigger an immediate irrational market response, typically a panic sell-off. Then, over surprisingly short periods, investors realize that they and the rest of the world will survive and overcome the devastation, and the markets recover to resume the predominant trend that existed before the event took place. Let us review a couple of examples.

Probably not too many subscribers can remember that far back, but the early sixties were as tense a period as the world had seen in almost twenty years. In 1963, the United States had just recently seen the end of the Cuban missile crisis when the U.S. involvement in the war in South-East Asia started to seriously heat-up due in large part to the coup in South Vietnam. On November 22, 1963 the assassination of President John F. Kennedy sent shock waves throughout the world and the stock market plunging. However, as devastating and far reaching as the tragedy was, by the end of the year the markets had recovered all of their losses, and were up over 20% a year later.

Still fresh in everyone's memories, the unprecedented terrorist strikes of September 11, 2001 had a massive impact in terms of lost lives and financial assets, and a long-lasting disruptive effect by signaling the beginning of a new type of global armed conflict. Considering the enormity of the events, the markets reacted in a predictable and one might even say orderly fashion. Ironically, the fact that the most visible blow took place in New York City, not far from Wall Street, may have helped by forcing the markets closed for almost a week - action that may well be repeated in the future regardless of where the next event occurs. After the markets re-opened on September 17^th, a measured sell-off reached its peak (about -16%) within five trading days, and was entirely erased within one month of the event to the day. Since our Model already had us in a Sell mode when the attacks happened, TimingCube subscribers fared well with the recovery rally triggering a very profitable Buy signal on October 3^rd.

The first key observation about catastrophes is that by definition they cannot be accurately predicted. Maybe this is why Nostradamus, the world's most famous prophet of disasters, is not exactly renowned as a great stock market prognosticator.

The second valuable reflection is that such calamities tend to have a short-lived effect on the stock market. They can cause a temporary plunge but they do not change the underlying market trend. Yes, there is no telling how deep the initial sell-off might be. If it exceeds 9% (or 15%) from our entry point, as measured by the Nasdaq Composite, our Cash signal will act as a safety valve, if we are in a Buy mode at the time. If we are in Sell mode the brunt of the initial market response would favor our short position.

In summary, catastrophic events are inevitable but they are not predictable and they are unlikely to have a lasting effect on the markets. The enduring damage (both financial and emotional) of constantly expecting a disaster and being paralyzed on the side-line far outweighs the risk of being invested when it finally happens. Thus, the best course of action for us Trend Timers is to ignore fear and remember that the trend is our friend.

FAQ of the Week

Question: I recently saw the TimingCube signal in a public forum. Is this OK?

First of all we want to thank the subscribers that help us preserve the value of our wealth-building system by reporting mentions of our signal in online forums or even in other financial newsletters. As these loyal subscribers know, it is NOT OK to divulge the current signal to anyone, anytime or anywhere.

Any disclosure to a third-party is a direct infringement of the Disclaimer/Terms of Use all subscribers agree to when they sign-up for the service. Giving away the signal is not only unfair to all subscribers that pay for the service, but making the information public can directly undermine the effectiveness of the Model and negatively affect its performance. TimingCube actively monitors many online forums and publications and aggressively pursues any offenders we find. We can always use the help of a few thousand additional eyes and ears to insure no infringement will go unnoticed.

Don't get us wrong, we just love it when subscribers mention TimingCube in public forums. Especially if they say good things about us!

Warm wishes and until next week.

The TimingCube Staff