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

Market Update

This week saw stocks post more gains and our model issue a new Buy signal after the close Monday.

Buoyed by news that IBM is acquiring Netezza, tech stocks rallied strongly Monday and helped lift the entire market. The Nasdaq Composite powered 1.7% higher on the day to close above its June 21 high. The day's bullish action confirmed the trend shift that had started on September 1^st and resulted in a new Buy signal for our Model. The Federal Reserve announced Tuesday that it was leaving interest rates unchanged. The decision had been widely anticipated and had therefore limited impact on stock prices as the main indexes finished the day little changed. The market consolidated its gains over the next two sessions amid mixed economic news: weekly jobless claims were worse than anticipated but August sales of existing homes came above estimates. Stocks returned to their bullish ways in earnest Friday, as a broad-based rally yielded the Nasdaq Composite an additional 2.3% gain. Investors were especially pleased that business spending surged 4% in August. Stocks have now risen for four weeks in a row.

The Nasdaq 100 (QQQQ), Russell 2000 (IWM) and S&P 500 (SPY) respectively gained 3.48%, 2.98% and 2.07% 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 posted a 2.55% gain this week. The portfolio consists of the 5 top-ranked world ETFs as of September 10, which marked the beginning of the current 4-week holding period.

We now have a Buy signal in effect.

Trend Timing School

Timeframe perspective matters when investing

We know that investors are an emotional group as evidenced by the frequent and significant swings in market pricing from one day, week, or month to the next. The severe choppiness of the past few months has certainly been indicative of that emotional underpinning. "Confusion" and "Uncertainty" have been the watchwords of recent months; those words not usually found in any textbook financial formula for valuing stocks.

Emotion, and how we react to stock market gyrations becomes a key in determining our investment strategy. To couch that in broader terms, we ask ourselves three questions in determining an investment strategy:

1) How much knowledge do I need to have?
For example, to be an effective value investor, one must be able to intelligently sift through financial statements, understand quarterly earnings calls, etc. You must be able to dig into the details of a business and then determine whether the market is fairly valuing that company. This takes a good amount of financial, accounting, and business knowledge. By contrast, following a simple Buy, Sell, or Cash signal requires very little knowledge.

2) How much time do I have?
Closely accompanying the question of knowledge is the question of time. The value investing activity noted above takes time. Some people love it; they love combing through financial statements, digging into the business, unearthing the buried investment treasure. Some of us have the time to devote to such an endeavor, some don't. Following a market signal delivered to your email or cellphone requires very little time.

The two practical criteria covered, we turn to the emotional side of the equation:

3) Do I have the "stomach" for investing?
In other words, how do I react to the ups and downs inherent in stock investing? Studies show that most people do not fare well. They overreact, buying stocks after they've already risen to new heights, selling them after the pain has become too great and new lows have been plumbed. One reason we follow a long/short approach to markets is simply that we do not like watching our portfolio values getting pummeled by an emotional overreaction of the market to bad news - e.g. the market "crashes" that happen all-too-frequently. Rather than being a victim of this overreaction ourselves, we seek to avoid the doom and gloom, and perhaps even profit from it. And we take the emotion almost completely out of the question by providing easy-to-follow signals. There is no judgement indicator. Implementing those signals does take an act of will (our friends at MARKETTREND Advisors can help you if the will is lacking).

The interesting thing about emotional reactions to markets is that they are, to some degree, determined by what we look at - by our timeframe perspective. If we watch the markets throughout the day, you can't help but feel compelled to DO SOMETHING!, to make trades and participate in the action you are witnessing. Conversely, if all you ever do is hear the daily summary of the Dow Jones Industrial Average, you will quickly recognize that it goes up, it goes down, and only occasionally does it make more news than that simple summary.

A good example recently of the power of timeframe has been the real estate ETF, symbol IYR. Looking at a daily chart reveals the sort of choppy behavior that we've witnessed throughout stocks in general over the past few months.

Chart 1: the daily view is choppy with no consistent trend



For investors trying to catch any ride on IYR wave, the waters appear treacherous and forbidding. There seems to be no trend worth following here, just as there has been little consistent trend in stocks during that time.

However, if we expand our timeframe to a bigger picture, the seas look less choppy and the trend pretty clear.

Chart 2: the weekly view looks clearer



Climbing yet again to a monthly view provides yet more clarity.

Chart 3: the monthly view looks absolutely clear: real estate is trending higher



For most investors, who only look at monthly statements, this last view is what they would experience - some ups and downs within a larger context of movement. The problem with the larger view, of course, is that it takes a good while for the trend change to be noticeable. Thus, by the time the investor notices that every monthly statement is lower than the next, and gets to a point of frustration and despair over the situation, the trend will have been in place for a good while , the losses could be substantial, and the trend closer to the end than the beginning.

There is no right answer here, only the observation that one must choose their approach and stick with it. If you can handle the daily ups and downs of the stock market without taking actions in your portfolio that damage your wealth, then do so. However, if such daily movements make you nervous, stressed, and lead to panicky decisions, step back and take a bigger picture view. Recognize that stocks easily move up and down by 5-10% in a given month or two.

Of course, our goal is to make investing simple and easy while also minimizing the emotional ups and downs that doom us to poor performance. Thus, we provide clear signals that can be implemented with only a single trade. We deliver them directly to you, and even provide a money management firm to handle the whole process for you, should that be necessary. Our objective is to offer you an investment solution that not only works, but requires little knowledge, time, or emotional fortitude.

FAQ of the Week

Question: Isn't there some investment thesis tied to election cycles?

Just as the "sell in May and go away" data seems fairly compelling, the data surrounding presidential and congressional election cycles seems quite clearcut. Below we provide some charts showing that we are entering the "sweet spot" for investing based on election cycles. The first chart shows that the mid-term year we are currently in the midst of provides rather dismal performance (certainly confirmed this year!).

Chart 4: Average market returns by election cycle



Of course, these data are just averages and can vary dramatically from one cycle to another. Indeed, we are concluding right now an unusual September month. Historically by far the worst month of the year, September 2010 has been a rip-roaring bullfest. Certainly, if the election cycle data holds this time around, 2011 will be a very good year for stocks.

Chart 5: Election cycle returns by quarter: Now entering the peak return period!



Warm wishes and until next week.

The TimingCube Staff