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

Market Update

This week was marked by the Federal Reserve's decision to cut its key funds rate for the first time since June 2003. The markets started the week by moving modestly lower Monday on very thin volume, as many investors chose to remain on the sideline ahead of the Fed meeting the next day. Whereas many market watchers had expected the Central Bank to lower interest rates by 25 basis points, the Fed instead surprised investors Tuesday by deciding to act more aggressively and cut the funds rate by half a percentage point to 4.75%. In its statement, the Fed also signaled that additional rate cuts may be on the way in order to protect the economy from the adverse effects of the ongoing credit crisis. Stocks zoomed higher on strong volume following the Fed's announcement, with the S&P 500 jumping almost 3% for its biggest daily gain of the year. Still buoyed by the Fed's decision, markets kept moving higher Wednesday on even stronger volume before they took a pause Thursday as profit taking forced stocks to give back a small portion of their gains on lighter trade. Strong earnings results by Oracle helped the markets resume their march forward Friday to cap their best week of the year. Volume was again heavy as the day marked the expiration of September options and futures contracts.

The Nasdaq 100, S&P 500 and Russell 2000 respectively gained 2.43%, 2.80% and 3.78% on the week. All three indexes are now again situated above both their 50-day and 200-day exponential moving averages (EMAs).

For its part, our World Index Ranking portfolio matched the performance of the S&P 500 this week with a 2.79% gain. The portfolio consists of the 5 top-ranked world indexes as of September 14, which marked the beginning of the current 4-week holding period.

Our current Buy signal remains in effect.

Trend Timing School

Honest money

When traveling, it is frequently the unplanned and uncharted side trips which deliver real discoveries and the most lasting rewards. Today, we take it upon ourselves to temporarily stray from our equity-centric Trend Timing journey to explore an entirely separate asset class: gold. Since the essence of this article is about identifying and following the mega trend in the yellow metal, we are not completely abandoning Trend Timing.

The reason this topic is so timely is that the U.S. dollar's already bleak prospects have taken a major turn for the worse. We have written before about the fundamental ills and gloomy outlook of the dollar (read "The end of the U.S. dollar era"), but the Fed's actions earlier this week have major ramifications. Here are a few conclusions drawn by experts from the Fed's move to aggressively lower interest rates:

• Despite tough talk about fighting inflation, the Fed blinked
• The U.S. economy and financial system is sicker than previously thought
• The dollar will be sacrificed in an attempt to bail out U.S. banks, the housing sector and the equity market
• Future inflation is now baked into the cake
• Commodities, precious metals and gold in particular will benefit

Lower interest rates are bearish for the dollar because they make it less attractive to foreign investors. The dollar already has to overcome the obstacles created by poor fiscal policy, U.S. debt and deficit spending of unparalleled proportions, and depends entirely on interest rate differential to motivate investors. Combine that with a government that is obviously scared of a recession and has now embarked on a hyperinflationary monetary policy and you get the U.S. dollar moving down in all currencies and gold moving up in all currencies.

Since the dollar's gold peg was broken by President Nixon in 1971, the U.S. dollar and gold have generally been moving in opposite directions. This is illustrated quite clearly in Chart 1 below and by the recent round of record highs and lows by gold and the dollar, respectively. The dollar, depicted by the U.S. Dollar Index (the green line in the graph), not only resumed its long term down trend but, following the Fed's pronouncement on interest rates, did so with a vengeance as it sunk to new lows against all major currencies. The greenback is at parity with the Canadian "loonie" for the 1^st time in 31 years, and it also reached an all-time-low against the 13-nation euro which traded above $1.40 for the first time. The U.S. Dollar Index also closed at a new record low today (78.59) but more critically, it broke its most important (and last) support area which had held since 1992. This is technically very bearish for the U.S. dollar.

Chart 1: Long term view of gold and the U.S. dollar



Gold on the other hand (the gold colored line in the graph), has gone through different gyrations. Marking the end of the last secular bull market, gold had reached its all-time high of $850 per ounce in January 1980. Gold then entered a severe bear market which lasted some 20 years and took it to a low of $253 in August of 1999. Gold was all but forgotten, which is exactly when the next secular bull market began. Very few had the foresight and the audacity to invest in gold back then, but they have already been massively rewarded. By surpassing the May 2006 bull market high this week, gold is now at levels not seen in 27 years. Yet, anyone who believes that at $730 we are within reach of that record high forgets the long term effect of inflation. Using the "Dollar worth calculator", kindly provided by the Federal Reserve Bank of Minneapolis, which applies the Consumer Price Index (CPI) as published by the U.S. Department of Labor, the $850 in 1980 dollars converted to 2007 dollars is well over $2,100.

This means that the price of gold would have to almost triple from here just to match the previous high, which is also the best indication that the current secular gold bull market has a long way to go.

Some will argue that the stock market will also be one of the beneficiaries of lower interest rates and other liquidity injections, which is true. Still, even with equity markets in a sustained bull market for nearly 5 years, they have been weaker than gold. Chart 2 below graphs the Dow Jones Industrials in terms of gold, a ratio which has been on a clear down trend since gold bottomed in 1999.

Chart 2: The value of the U.S. stock market in terms of gold



So what does it all mean to me? A weaker U.S. dollar means that Americans will pay more for imports and trips abroad, but it is also expected to boost demand for U.S. goods and increase profits of U.S. exporters. The lower U.S. dollar will make America a cheaper destination for foreign tourists. The implication of future inflation is the steady decline in buying power and standard of living for Americans. Faced with such a quasi certainty it is our responsibility to protect our wealth from devaluation.

We had provided a general guide to "Dollar proofing your portfolio" in the July 20, 2007 Weekly Update, but this time around we focus on precious metals and gold in particular.

The TimingCube Model has no relationship with commodities, precious metals and gold, and the signals provide no clue about their separate trends. Unlike TimingCube which exclusively focuses on the trends in broad U.S. and world equity markets, our sister service ETFTide invests in various asset classes which could at times, depending on relative strength, incorporate commodity related ETFs such as GDX (gold miners), GLD (gold), SLV (silver), DBC (diversified commodities) (see "ETFTide ETF selection" for the full list of investments). Here we are not considering a trading technique but rather to be positioned on the right side of a long term trend. All the evidence points to a continuation of the secular bull market in gold and rising prices for years to come.

Why gold? It is worth to mention that throughout recorded history gold has been a store of wealth and used as a currency. In fact it is said to have preserved its buying power intact through the millennia, unlike any other currency invented by man. Most national currencies used to be backed by gold, including the U.S. dollar. Paper currencies have come and gone, but gold has always remained a safe haven in times of crisis. Besides the fate of the dollar there are many drivers behind the gold bull market. The best way to summarize the situation is that the demand is unprecedented and growing and the annual production and discovery of new deposits have been on the decline for years. For many gold is the only real money, or honest money, because it comes with no political affiliation or obligation, no baggage, and no small print. No one can fabricate gold (alchemists aside). We believe that everyone should own some gold for safety and liquidity reasons in times of crisis, as well as a very promising long term investment.

Luckily there are many way to invest in gold and other metals:

• Commodity ETFs (GLD, IAU, SLV, DBC)
• Bullion, coins and bars
• Mining companies
• Gold mining sector ETF (GDX)

Short term, the dollar has become oversold and gold and gold shares are in overbought territory. This does not mean that they cannot increase these conditions further, but it suggests that there is a higher likelihood that the respective moves will take a breather sooner rather than later. Any such pause should be a great opportunity to establish your honest money position.

FAQ of the Week

Question: How do I access and use the World Index Ranking?

With the traditional TimingCube strategies, one could simply go by the signal notification e-mails and never log in to the site (at the risk of missing the wisdom of our weekly prose ). With the World Index Ranking system you need to access the site at least once every 4 weeks to obtain the latest Top 5 list.

Your immediate destination after logging in to the TimingCube Web site is the "Current Signal" page. Besides providing the "Current Signal" and your "Subscription Status", the page also holds the most current World Index Ranking table listing the Top 10 indexes and the 7 U.S. indexes. The complete ranking showing all 27 markets can be accessed by the corresponding link below the table.

The idea behind the World Index Ranking is to establish your positions in the Top 5 world indexes by purchasing the corresponding ETFs and holding them for 4 weeks. Every 4 weeks you rebalance your portfolio which consists of eliminating the positions that are no longer listed in the Top 5 and replacing them with the new ones. This is the Buy and Rebalance strategy which simply ignores the timing signals. The Long Only strategy is identical, except that it goes to cash during Sell signals. The Long and Short strategy shorts the QQQQ during Sell signals.

For more details read our "Our Service" page.

Warm wishes and until next week.

The TimingCube Staff