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

Market Update

With earnings season now in full swing, stocks continued to rally over the 5-day span, sending the S&P 500 to its highest weekly close since September of last year. It was not all straight-up action, however, the main indexes remaining almost flat during the first two sessions of the week as investors decided to exercise caution ahead of a raft of quarterly results by major corporations. Indeed, Intel reported its Q3 results after the close Tuesday, topping expectations and issuing a bullish outlook for the current quarter. This was music to investors' ears and a solid rally ensued Wednesday as market participants bid up shares on heavy trade to send the S&P 500 1.8% higher by day's end. The index managed to gain another 0.4% during the next session as energy stocks outperformed following a 3% jump in the price of oil. Economic news were mixed: if weekly jobless claims fell more than expected, core inflation readings came in slightly higher than anticipated. With IBM reporting disappointing quarterly revenue results and Bank of America posting a larger-than-expected earnings loss, stocks opened on the weak side Friday but eventually recovered a good chunk of their losses as another jump in oil prices boosted the energy sector.

The S&P 500 (SPY), Nasdaq 100 (QQQQ) and Russell 2000 (IWM) respectively gained 1.52%, 0.71% and 0.42% 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 again outperformed its U.S. counterparts this week with a 2.13% gain. The portfolio consists of the 5 top-ranked world ETFs as of October 9, which marked the beginning of the current 4-week holding period.

Our current Buy signal remains in effect.

Trend Timing School

More on our Model

We are often asked if we can provide additional information on how TimingCube issues its signals. Because of the proprietary nature of our Model, we obviously cannot disclose all its inner workings or we would no longer have a viable service. What we can say is that our Model is primarily based on price and volume action on the Nasdaq Composite index.

Why do we use the Nasdaq Composite to feed our Model? It turns out that this index is an excellent proxy for the market as a whole. This is a key requirement, as the Trend Timing approach seeks to recognize broad market trends so that we can act on them and profit accordingly. Our data source must therefore represent a wide variety of industries and stocks with diverse market capitalizations. It must be well established and regarded, and it must be widely available. The Nasdaq Composite certainly fits the bill. It is comprised of all domestic and international based common type stocks listed on the Nasdaq Stock Market. Today, the index includes approximately 3,500 companies, more than most other stock market indices. Because it is so broad-based, it is one of the most widely followed and quoted major market indices. Further, our reseach has shown that it correlates very well with other US-based and international market indices over the long run. This is the reason we have only one signal: when there is a signal change, we can use it as-is to trade any broad-market index of our choosing, thanks to the high correlation with the Nasdaq Composite. Our studies show that this approach works better than trying to construct a separate signal for each individual index. Our Model requires just the right amount of volatility to detect the proper turning points of the broad market. Many indexes just simply have too much "noise", or are not volatile enough to accurately convey the market trend turning points in a timely fashion. For example, when compared to the Nasdaq Composite the S&P 500 movements are rather slow and tame. Therefore, it is more difficult to use the latter index to detect a true trend change early enough and to eliminate false signals.
In conclusion, the Nasdaq Composite provides exactly the amount of volatility we need and it is therefore the sole source of data we use to generate our signals.

Now that we know what our data source is, namely the Nasdaq Composite, how do we use it? Our Model relies on several technical indicators, most of them proprietary, to determine when the trend changes. It does so by primarily studying price and volume action.
Price itself, of course, is a key ingredient of many timing systems. Many well-known indicators, such as moving averages, are based on price alone. But to us, price is not enough. We also want to have a look at what the trading volume is telling us. Volume reflects the number of shares traded in a particular stock or index, and is a direct manifestation of the money flowing into and out of the stock or index. The theory behind all volume indicators is that quite frequently, volume precedes major price moves. Volume is also very accurate in showing the buying and selling activity of the big institutions that move the market. There are numerous ways to look at volume, including fancy mathematical formulas and charting techniques, such as the well known and popular Chaikin Accumulation/Distribution Line. As with everything in Trend Timing, we like to keep it simple and use common sense. At the core, we want to see price and volume go in sync. In a sound market, prices will go up while volume increases, as the big players who drive the market put more money to work. By the same token, if prices start dipping on higher volume, it might be an indication that institutions are selling out and that the market may be turning. We therefore measure the relationship between price and volume over a period of time to detect patterns that indicate that a turning point might be at hand. Because of the way it is designed, our model will never spot the absolute top or bottom (which nobody can do consistently anyway) but it will confirm a shift once it has already started to happen. Upon confirmation, it will issue the corresponding signal. We often get asked if our Model factors in other information such as fundamental or economic data, external events or opinions of any kind. The short answer is no. The Model is technical in nature and is therefore completely unemotional. It only reacts to market action, not to what we or anyone else might think will happen next.

FAQ of the Week

Question: What is the strength of the current signal and how long will it last?

The short answer is: we do not know.

Most of us are very inquisitive by nature, and we would love nothing more than knowing something important just a little before everyone else. We want this early warning signal, or to find this more ideal time to buy or sell. Our Model is very good, but it cannot predict how close or how far from the next signal we are. What is even worse is that even if we had a way to express the strength of the signal (maybe with a color coded indicator inspired by the Homeland Security Advisory System, we could have orange Buy signals or green Sell signals) we would refuse to share it for the good of our subscribers.

The simple reason is to help enforce the discipline to follow the mechanical system faithfully without hesitation. Attaching a figure of merit to our signals would be tantamount to encouraging subscribers to second-guess the Model and outsmart each other, with predictable disastrous results. Whenever you consider second-guessing the system you are at great risk of "falling off the Trend Timing wagon" and be back chasing the hot tip of the day, or worse, what your gut tells you to do. Please resist the urge. Our weekly Market Updates will communicate any significant market events that get us closer or farther from a signal, but we will not taint the simplicity and clarity of the Model by grading the signals.

Warm wishes and until next week.

The TimingCube Staff