Signal Type	Trade Date	Index	Return since issued
		Nasdaq 100
		Russell 2000
		S&P 500

Market Update

Stocks posted strong gains this week, helped by lower oil and commodity prices and an improved inflation outlook. The Nasdaq 100 has now closed higher in each of the last six sessions and the S&P 500 is within striking distance of the yearly high it established in early May. The markets were especially strong Tuesday, when the Nasdaq Composite vaulted 2% on heavy volume to cross the 2,200 level. Friday marked the release of the August CPI (Consumer Price Index), which came in at a tame 0.2%, half the July number. Core CPI, which excludes volatile food and energy costs only rose 0.2% for the second month in a row. Both numbers helped assuage inflation fears and economists think that CPI readings in the coming months should be even better thanks to lower energy prices. As inflation appears to be under control, the Fed is likely to forgo a rate hike at its September meeting next Wednesday.

The Nasdaq 100 and Russell 2000 respectively gained 3.67% and 2.94% on the week, while the S&P 500 finished 1.61% higher. All three indexes now rest above both their respective 50-day and 200-day exponential moving averages (EMAs). It should be noted that the 10-day EMA of the Nasdaq Composite crossed above the 200-day EMA this week, a condition that matches our definition of a bull market. For more on this subject, please refer to our article "The psychology of bull and bear markets" in the October 31, 2003 weekly update. There is no change as far as our Model is concerned and our Buy signal remains active.

Trend Timing School

World Index Ranking

A corner stone of our longer term trend following Model is that most of the major world stock markets are well correlated most of the time. We have written about market correlation on several occasions (read "The Trend is contagious"), but since we introduced the "Performance with individual security or index" feature on the "Result" page you can prove to yourself that the correlation of world markets is not a myth by comparing various world indices and see that for most the results following TimingCube's Long and Short strategy would generally have outperformed Buy and Hold, a good indication of positive correlation.

So, while most broad world market indexes are generally well correlated, we also fully recognize that relative strength always changes between markets, and we offer the World Index Ranking service to help you diversify your portfolio by investing in markets that show the strongest momentum and potential for superior returns. The end result is TimingCube's Trend following Buy/Sell directional guidance coupled with the momentum-based world market targeting of top ranked world markets.

The World Index Ranking Model
Unlike the TimingCube Model which is trend following, the World Index Ranking Model establishes the relative strength of 27 separate indexes based on momentum. Like everything at TimingCube it has a long-term bias, is 100% mechanical and unemotional, but the specific ingredients and recipe are proprietary and therefore are not disclosed.

The implementation
The World Index Ranking strategies are based on the premise that over time the relative strength of world markets changes as former leaders slow down and new ones emerge. The strategies seek to have us invested in the strongest markets by building a diversified portfolio from the top indexes and rebalancing it every 4 weeks. Rebalancing consists of selling indexes which have slipped out of the top group and buying the new ones.We update the World Index Ranking weekly, after the close on Friday, so you can start your cycle on any day as long as you then rebalance every 4-weeks from then on. When beginning between signals, it is for you to decide, but an alternative to waiting until the next signal to begin would be to dollar cost average into the positions to reduce the risk as described in the March 5, 2004 Weekly Update.

The strategies
Our research and testing has shown that simply rebalancing amongst the world's leading indexes beats any buy and hold strategy over time. In addition, we can further enhance performance and manage down side risk by overlaying the TimingCube signals, resulting in three distinct World Index Ranking strategies:

• The Long Only strategy invests in the top 5 indexes and rebalances every 4 weeks during Buy signals, and goes to cash during Sells
  
• The Long and Short strategy invests in the top 5 indexes and rebalances every 4 weeks during Buy signals, and goes short QQQQ shares during Sell signals
  
• The Buy and Rebalance strategy ignores the Buy/Sell signals altogether and stays fully invested in the top 5 indexes at all times, and rebalances every 4 weeks

Another way to look at the strategies is in terms of a cycle which normally begins with a Buy signal, except for the Buy and Rebalance which stays invested all the time:

• Buy signal: In all strategies, buy your positions in the top 5 indexes. 4 weeks later you rebalance.
  
• Cash signal: Sell your positions and stay in cash
  
• Sell signal: Sell your positions and either stay in cash for Long Only strategy, or in the Long and Short strategy, short the QQQQ (but it is easier to simply buy the short ETF ticker symbol PSQ)

The world indexes
Our Model is index based to avoid being too specifically tailored to a particular investment. There are many stock markets around the world but we automatically narrowed the field with some of our requirements, such as a minimum of 5 years of publicly accessible index data. The remaining ranked list can be found on the "Current Signal" page. We ended up with a total of 27 indexes divided as follows:

• North/Latin America (10 indexes, 7 U.S.)
• Europe (9 countries/indexes)
• Asia/Pacific (8 countries/indexes)

The investment choices
After settling on a strategy one must decide which investments to use. There are many to choose from between ETFs, open- and closed-end ones, mutual funds, options, etc. The "What to Trade?" section of the "Resources" page contains lists of applicable investment vehicles.

The risks
International investing does provide additional challenges and opportunities. This week's FAQ entitled "What are the risks of international investing?" provides an overview of the risks.

Additional information
As with any new model and system there are bound to be many questions that come up. We attempted to anticipate as many of them as we could and the answers can be found in the new "World Index Ranking Questions" section of the "FAQ" page.

FAQ of the Week

Question: What are the risks of international investing?

Any investment in the stock market comes with a recognized set of risks, but when this stock market is in a foreign country there are some additional hazards. Both the TimingCube Buy/Sell directional guidance and the World Index Ranking market targeting help mitigate some of the risks by generally staying on the right side of the market and concentrated in the strongest markets, but they cannot eliminate them. It is therefore important to recognize the special risks associated with international investing.

• Country or regional economic/natural/political issues occur from time to time which impact the local stock markets to suddenly perform poorly or fall out of synch with the major world markets and the TimingCube Signal. The East Asian financial crisis of 1997-1999 is a good example of such events
• Currency fluctuations can be primary considerations as we detailed in last week' FAQ "Are international ETFs affected by currency movements?", but with the U.S. dollar in a long term bear market this may turn out to be more an asset than a risk
• Typically, the stock markets high on the World Index Ranking also exhibit high volatility, which also means risk. The high flying and high performing Nasdaq Composite of the turn of the century was highly volatile and risky too
• The divergence between country indexes and country funds can be a serious problem, especially with closed-end ETFs and mutual funds which are actively managed for the most part and do not track an index. A good example of this is our top ranked index for this week, IndiaIndia ^BSESN, that has ETFs, IFN and IIF, which do not correlate well with the index
• Many of the international ETFs on the market are very new and many are thinly traded. Low liquidity is not nearly as much an issue with ETFs as with individual stocks because their liquidity is really the liquidity of the underlying companies and shares are issued and unwound dynamically

Warm wishes and until next week.

The TimingCube Staff