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

Market Update

In a week that was marked by record volatility, stocks finally managed to post gains over the 5-day span. After world leaders met last week-end to devise solutions to address the ongoing financial crisis on a global scale, the major averages soared Monday, sending the S&P 500 a staggering 11.6% higher for its biggest daily gain ever. Carried by such strong momentum, the market opened higher Tuesday but eventually reversed course to close in the red on weakness in the technology sector. After the government announced that retail sales fell 1.2% in September, significantly more than the anticipated 0.7% decline, stocks plunged Wednesday as fears that the economy will have to face a deep recession took their toll. The S&P 500 dived 9% during the session, its second-worst day ever. Stocks continued their descent Thursday morning but then managed to turn around after the main indexes successfully tested their lows of last week. News that Microsoft once again expressed its interest in buying Yahoo! helped propel the Nasdaq Composite 5.5% higher. After the close, Google released a better-than expected profit report. The news restored some optimism among investors as stocks moved higher for most of Friday's session. The major averages could not hold on to their gains, however, as they retreated late in the day to close with mild losses.

After closing lower for 4 consecutive weeks, the S&P 500 (SPY) and Nasdaq 100 (QQQQ) finally managed to finish higher on the week, respectively gaining 5.32% and 3.13%. The Russell 2000 (IWM) did not do as well as it lost 0.31%. All 3 ETFs remain located well below both their 50-day and 200-day exponential moving averages (EMAs).

For its part, our World portfolio posted a 2.52% gain this week. The portfolio consists of the 5 top-ranked world ETFs as of October 10, which marked the beginning of the current 4-week holding period. Please note that since we now have an active Cash signal, the World approach calls for selling your holdings if you follow the "Long Only" or "Long and Short" strategy. Only if you follow the "Buy and Rebalance" strategy should you remain invested in the top 5 ETFs, as the strategy calls for staying invested at all times. Please go to the "Our Service" page for all the details.

Our current Cash signal remains in effect.

Trend Timing School

The seasons of the stock market

After the last several weeks of wild market moves, hopefully the stock market will end its free fall and get a decent bounce, some investors will regain confidence as salvation plans are unfolding, while others will bet on an end of the year rally. This year may be somehow different due to the recession fears, but this type of reasoning is surprisingly common as generations of would-be statisticians have looked for stock market patterns and run the numbers on everything from daily/weekly/monthly/yearly historical stock prices, the study of long waves, the correlation between party politics and the markets, to the effects of star alignment. The analysis of swings in the collective mood of investors and the related movements in stock prices in order to predict future performance of the stock market is frequently referred to as "seasonality investing". There are numerous advisors and investment newsletters promoting such systems, with widely varying degrees of success.

Not content to leave a good thing alone we just had to run some of our own statistics and give you an overview of some of the most popular - if not the most accurate - seasonality investing beliefs and techniques. The summary of our month-to-month analysis of the Nasdaq Composite
Index over a period of twenty three years can be found in the tables below.

% of Time VOLUME is Up or Down  Nasdaq Composite Index 1985-2007 Up Down January 91% 9% February 48% 52% March 52% 48% April 57% 43% May 43% 57% June 57% 43% July 48% 52% August 52% 48% September 39% 61% October 83% 17% November 43% 57% December 57% 43% Average 56% 44%

% of Time PRICE is Up or Down  Nasdaq Composite Index 1985-2007 Up Down Average Gain January 77% 23% 3.68% February 52% 48% 1.08% March 65% 35% 0.24% April 57% 43% 0.58% May 65% 35% 1.46% June 61% 39% 1.29% July 48% 52% -0.16% August 57% 43% 0.10% September 57% 43% -1.25% October 61% 39% 0.59% November 65% 35% 1.75% December 57% 43% 2.37% Average 60% 40% 0.98%

The January effect. One of the most reliable seasonal predictions is that January tends to be the best month of the year for investors. Per our investigation above, January months are up an impressive 77% of the time for an average gain of 3.68%. In fact, it should probably be renamed the November/December/January effect because they are often the three strongest gainers of the year.

The spring thing. This theory contends that the January through April market performance is a reliable indicator for the balance of the year. If spring is up, the year will be up. Even if frequently correct, this theory is not very useful because by the time you know how stocks performed during spring a lot of the year's gains are already behind you.

Back-to-school is not cool. Contrary to popular belief, volume drops in 61% of September months, more than the average month (Note: due to steady market growth over the years, the average month sees a declining volume only 44% of the time. Between 1985 and 2007, the average monthly volume on the Nasdaq increased from 1.7B shares traded to almost 38B). The one September reputation that is justified and well deserved is that it is statistically the worst month of the year, dropping an average of 43% of the time for an average return of -1.25% (Note: due to the stock market's historical upward bias, the average month sees a loss only 40% of the time)

October panic. Probably because so many crashes and market bottoms occurred in a month of October, the typical investor has become fearful of them. In fact, Octobers aren't so bad with an average gain of 0.59%. Interestingly, the volume jump that was expected to happen in September materializes in October 83% of the time.

Pre-Thanksgiving buy signal. The adepts of this scheme buy on the Monday before Thanksgiving and sell on the third day of January (and stay in cash for the rest of the year). Simple, and beats Buy and Hold consistently over the years according to proponents.

Election prediction. Popular wisdom has it that the stock market does better with a Republican president. Wrong! Over the last hundred years or so, the average yearly gain under Democrats is almost 30% higher than when the Republicans occupied the White House.
How about: The second half of a presidential term delivers better performance than the first one, the fourth year doing even better. Oooops...2008 is not over but so far this is not the case and all bets are off for 2009.

Winter blues. This theory postulates that the shortness of days during winter months leads many people to depression (seasonal affective disorder or SAD), which in turn increases their risk aversion, which negatively affects stock market performance during winter months. Great, but we suggest these manic depressives meet with the advocates of the "Pre-Thanksgiving buy signal" or those of the "January effect" mentioned earlier for therapeutical assistance.

Despite our habitual tongue-in-cheek tone, we do not deny that some of the figures can seem very compelling. However, in our analysis, seasonality investing techniques experience tremendous variations from year to year. The chart below, which plots the month-to-month performance of the Nasdaq Composite over the last twenty three years, demonstrates how scattered the patterns can be. Even if some relationships exhibit favorable averages, most are not much more statistically significant than a coin flip.

Because of this, seasonality plays no part in our Trend Timing Model. Instead, we let the market tell us what it is doing and go with the predominant trend.

FAQ of the Week

Question: Can you manage my money?

Yes, indirectly. Our sister company, MARKETTREND Advisors is a full-service money management firm registered with the S.E.C. They implement TimingCube strategies and signals in addition to other model-driven portfolios. MARKETTREND Advisors' overall investment philosophy focuses on capital preservation and driving absolute returns in up and down markets. Remarkably, when we checked their returns last week, their core MTA Index strategy was slightly POSITIVE year to date, while their MTA World Index strategy had a year-to-date loss in the single digits. For details, please see the "Managed Accounts" page.

Warm wishes and until next week.

The TimingCube Staff