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

Market Update

With the technology sector on a tear, it has been yet another very good week for stocks. Monday's session turned out to be a quiet one that saw the main indexes remain largely unchanged on light trade as banks were closed for Columbus Day. Despite early weakness, stocks resumed their march forward Tuesday, with the Nasdaq Composite gaining 0.6% on increased trade. Investors were pleased that the minutes of the Fed's September meeting show that the central bank is considering further quantitative easing measures to help the economy, which is seen as good for stocks. Buoyed by better-than-expected earnings reports from Intel and JPMorgan Chase, the major averages continued their climb the next day, yielding the Nasdaq Composite an additional 1% gain, as volume expanded again. Thursday saw the release of weak economic data, as weekly jobless claims and inflation numbers came in higher than expected. News of a large-scale probe of bank foreclosures added to the negative tone, putting pressure on financial issues. Despite the headlines, the rally could not be derailed as the S&P 500 only relinquished 0.4% on the day. After the close, Google reported stellar quarterly results. The news provided a huge boost to the technology sector during Friday's session, resulting in a 2.1% gain for the Nasdaq 100 as the index closed at its highest level since December 2007. Investors were also pleased by comments from Fed Chairman Ben Bernanke that pointed to the need for further monetary easing.

The Nasdaq 100 (QQQQ), Russell 2000 (IWM) and S&P 500 (SPY) respectively gained 3.50%, 1.46% and 1.00% 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 0.92% gain this week. The portfolio consists of the 5 top-ranked world ETFs as of October 8, which marked the beginning of the current 4-week holding period.

Our current Buy signal remains in effect.

Trend Timing School

TimingCube vs TradeGuru

The TimingCube Model does not use any fundamental or economic data. Instead it relies exclusively on technical analysis and several proprietary indicators using the Nasdaq
Composite as the data source. To further illustrate the point, we want to review the two main schools of thought when it comes to investing: fundamental analysis and technical analysis.

Analyzing company fundamentals has been the bread and butter for generations of Buy and Hold stock pickers selecting the companies that represent the best value and probability of increasing shareholder equity. Reams of company data such as earnings per share (EPS) and price/earning ratios (P/E) are compared with that of peers, competitors and industry averages to identify the best stocks to buy. We are big believers of this approach when it comes to choosing individual stocks. Great investors such as Warren Buffett or Peter Lynch have proven time and again that a lot of money can be made if you are able to pick the right stocks based on their fundamental strength. However, our view is that the approach is flawed when applied to the market as a whole and cannot effectively help determine the underlying trend. One issue is that when the market suffers a significant drop, the stock of over 2/3^rd of all companies goes down, regardless of their fundamentals. The other problem is that economists and market strategists apply fundamental analysis on a macro scale to determine the future direction of the market or that of specific sub-segments. Broad measures such as employment levels, inventories, the money supply, interest rates and currency fluctuations can all be indicators or even catalysts for stock market movements. All this data is of course widely subject to interpretation: ask 10 economists where they think the market is headed next and you will get 10 different answers! The stated intent of such flawed trend forecasting activity is to shift portfolio weighing from one industry group to another or to re-allocate assets among equities, bonds and cash. This is nothing more than a form of market timing! The main issue with applying fundamental analysis to the market as a whole is that what you get is no more than the opinion of some so-called expert. It is almost certain that unexpected factors such as news and investor psychology will ultimately move the markets in such a way that the prediction will turn out to be plain wrong.

Over the past several years technical analysis has become a popular method of evaluating securities and markets. Instead of attempting to measure a market or a security's intrinsic value, technical analysis strictly looks at past and present market data, such as price and volume, and attempts to identify patterns that suggest future activity. The primary tools of the trade are various types of charts, moving averages, relative strength indexes and support/resistance zones. While many favor complex statistical analysis tools and the recognition of patterns such as head and shoulder, cup and handle or double bottom formations, we try to keep it simple. While our Model does look at various indicators such as moving averages it leans most heavily on the relationship between price and volume action.

Since there is no fundamental analysis involved in the TimingCube Model, do we use it elsewhere? The answer is yes. The TradeGuru GuruFolio approach is based exclusively on fundamental analysis. The idea is to select a basket of stocks that is likely to outperform over the coming months. Whereas TimingCube relies on technical analysis to time the broad market using index-based ETFs and mutual funds, TradeGuru GuruFolios are invested at all times and are made of individual stocks selected with fundamental analysis. The two systems both outperform over the long-term, but because of their different characteristics, they complement each other very nicely and we therefore believe that they belong to any portfolio. Under the TradeGuru service, we currently offer two GuruFolios, Folio A and Folio B, consisting of ten positions each. To determine which stocks go into each GuruFolio, we screen the universe of all equities traded on the U.S. exchanges, using fundamental analysis to find stocks with the best value characteristics. The stocks must also meet specific liquidity requirements. For instance, we only recommend stocks of companies with at least $200M in market cap. Whereas Folio B is strictly value-based, the stocks in Folio A must meet specific value and growth criteria simultaneously. We want to buy stocks that have good growth potential but are still reasonably priced. If you are familiar with the concept of "Growth At Reasonable Price" or GARP, it is basically what Folio A is all about.

The TradeGuru GuruFolio service is an easy-to-use and low maintenance system. It was started in 2006 and backtested to 2002. What about performance? Both GuruFolios sport an annualized return in excess of 30% since January 2002. Folio B has outperformed the S&P 500 every single year since then and Folio A is not far behind, only trailing the large-cap index last year. Sure enough, our GuruFolios suffered significant losses in 2008 as no equity sector was spared during the market's precipitous fall. Yet, both managed to beat the S&P 500 that year too. Year to date, both GuruFolios are again ahead of the market: as of October 13, Folio A and Folio B are up 8.6% and 13.3%, respectively. Please refer to the table below for detailed performance figures. It will hopefully convince you that there is also room for strategies based on fundamental analysis in anyone's portfolio.

TradeGuru Returns from 1/4/02 to 10/1/10
	Folio A	Folio B	S&P 500
Annualized	31.2%	38.9%	3.0%
Cumulative	642.3%	1205.6%	14.9%

TradeGuru Yearly Returns
	Folio A	Folio B	S&P 500
2009	2.8%	47.2%	32.3%
2008	-25.6%	-33.1%	-40.7%
2007	41.9%	37.5%	4.3%
2006	29.9%	24.5%	13.4%
2005	40.7%	67.8%	3.0%
2004	50.4%	56.1%	9.2%
2003	92.8%	80.0%	23.8%
2002	23.5%	58.7%	-21.5%

FAQ of the Week

Question: Should I use your own 4-week schedule to rebalance my World portfolio?

To make sure everyone follows this topic, when we talk about rebalancing, it is in the context of the World ETF Ranking 4-week upgrade cycle. There are a couple of answers to this question, depending on which strategy you implement.

For a Buy and Rebalance investor who remains invested in the World ETF Ranking top 5 regardless of the TimingCube signals, it does not matter when to start, as long as you rebalance faithfully every 4 weeks from your start date. The World ETF Ranking is updated weekly to make sure that you always have the most recent data to get started. The results we show on the "Results" page are for our sample 5-ETF portfolio which was started on December 15, 2000, and is rebalanced every 4 weeks since. Our testing has shown that variations in results from one start date to another are not statistically meaningful.

For the Long Only and Long and Short strategies, the beginning of a cycle is always dictated by the TimingCube Buy signal. On the Trade Date, the day after the signal is issued, we take positions in the current top 5 of the World ETF Ranking, and then rebalance every 4 weeks from that day on.

Warm wishes and until next week.

The TimingCube Staff