Welcome to TimingCube.com! TimingCube offers a stock market QQQ timing service for long-term investors. It provides a buy and sell timing signal for QQQ trading or investing in Nasdaq 100 mutual funds (Rydex, Profunds). It dramatically outperforms Buy and Hold QQQ investing.
Welcome to TimingCube.com! TimingCube offers a stock market QQQ timing service for long-term investors. It provides a buy and sell timing signal for QQQ trading or investing in Nasdaq 100 mutual funds (Rydex, Profunds). It dramatically outperforms Buy and Hold QQQ investing.

October 31, 2003 Update


 Signal Update
Current Signal Performance as of 10/31/2003
Signal Type
Trade Date
Return since issued
Buy
04/03/2003
+32.06%

Cumulative Returns since First TimingCube Live Signal (06/18/2001) as of 10/31/2003
Long Only
Long Only with Margin
Long & Short
Long & Short with Margin
Buy & Hold
+83.45%
+198.40%
+239.12%
+805.90%
-17.50%

Note: Performance and Returns above are obtained by using QQQ as the investment vehicle.

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 Market Update
Despite the flat close today, the markets ended October with strong run-ups for both the week and the month. Earlier in the week, encouraged by a number of multibillion-dollar merger deals and the Federal Reserve's decision to keep the federal funds rate steady, investors drove the markets sharply higher. All the major indices now stand at or near their best levels of 2003, and the S&P 500 even managed to close at a new 17-month high.

For the week the Nasdaq Composite index and QQQ gained 3.57% and 2.87% respectively, and for the month of October both are up over 8%. These substantial advances reinforce the current market uptrend and our signal continues to be a Buy.

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 Trend Timing School
The psychology of bull and bear markets

Last week we reviewed why it is psychologically important – and profitable – not to hold long stock positions during significant market down drafts. Since major bull and bear market phases tend to last substantially longer than our Buy and Sell signals, the implication is that we will be buying and selling in both types of markets. It is healthy to recognize bull and bear markets and to understand their distinct psychologies in order to feel at ease and secure about our own position.

While there is an endless number of ways to identify bull and bear markets, our definition uses a simple technical analysis method combining 10-day and 200-day exponential moving averages (EMA). The EMA has a number of advantages over a simple moving average but we like it primarily because it gives the most weight to the most current value. We plotted the 10-day and 200-day EMAs for the Nasdaq Composite in the chart below. Whenever the faster moving EMA (10) is above EMA (200) we are in a predominant bull market, otherwise we are in a bear market. You'll notice that despite valiant attempts in January and December of 2002, the market only turned bullish in April of this year with a clean EMA cross-over. Looking at the alternating red and green bars which graphically represent our Buy and Sell periods, you can see that our Model endeavors to exploit substantial bear market rallies – which are upward corrections during a prolonged bear market – such as the one from October 2001 to January 2002. Conversely, the Model will capitalize on significant downward corrections during bull markets. The graph below also places the recent July and August scares in proper perspective by correctly downplaying them as very minor corrections.

In order for us to derive comfort from this knowledge, let's review the psychology of bull and bear markets. During bull phases the market wants to keep moving up and the default action is for investors to "buy the dips". This is further evidenced by generally lower volume when the market declines and higher volume when it advances, because more investors view a market retreat as an opportunity to jump in at a better price and not be left behind. This in turn causes the higher highs characteristic of bull markets. The exact opposite mentality prevails during bear markets. Investors view rallies as opportunities to bail-out of the market, which in turn leads to lower lows.

Armed with this insight we can observe and interpret market behavior to reinforce our commitment to the Model and our current position. As trend timers we also gain peace of mind from knowing that when the next substantial correction comes, the Model will signal the new direction.

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 FAQ of the Week
Question: How do I read the "Trades and Cumulative Returns" table on the "Results" page?

From the number of questions we receive on this topic, many have trouble reading and understanding this important information. Let's begin with a few preliminary notes:
  • The returns table on the "Results" page is identical to the one on the "Current Signal" page and all explanations apply to both. The only exception is that the later has a fixed "since" date coinciding with the beginning of QQQ on 3/10/1999.
  • To find the table in question, go to the "Results" page and click on the link, or simply scroll down the page.
  • Make sure you are logged in to see the current results as of the last market close. So as to not give away the current signal to the general public, the results they see are delayed by twenty trading days.
  • If you'd like to see trades and returns from a date different than the default 3/10/1999, select another start date from the pull-down menu next to "Trades and Returns since" right above the table. By selecting "1989 (1/3/1989)" you would see our entire back-tested history.

Here is a detailed explanation of the table column headings.

Now let's go over an example of cumulative return calculation starting with the signal on 3/10/1999:

  • » On 3/10/1999, a Buy signal was in effect. We bought QQQ at the split-adjusted open price of $51.125 (historical prices can be found on numerous sites such as Yahoo! Finance)
  • » On 3/29/2000 we issued a Sell signal after the market close, which triggered our QQQ sale on 3/30/2000 at the open price of $107.25. The return for the Buy signal was then
    (107.25 / 51.125) - 1 = 1.0978 which corresponds to a return of 109.78% as listed in the "Return (No Margin)" column of the table on row 3/10/1999. Note that $107.25 is also the price at which we took the new short position.
  • » On 5/30/2000 we issued a Buy signal after the market close.
    The open price on 5/31/2000 was $84.47. The return for the Sell signal was then
    1 - (84.47 / 107.25) = 0.2124 which corresponds to a return of 21.24% for our short position. This is the "Return (No Margin)" value you see listed on row 3/30/2000 of the table.

  • And so on.
  • » The cumulative returns are calculated by compounding the gains from each successive trade. Since the return of the first trade was 109.78%, the money you would have had on 3/30/2000 is the original amount plus the original amount multiplied by 1.0978, which is equivalent to multiplying the original amount by 2.0978. Likewise, the second return of 21.24% would then have multiplied that number by 1.2124. The money you would have had after these two trades is the original amount multiplied by 2.0978 x 1.2124, a 2.5434 multiplier. This corresponds to a return of 154.34% which is exactly the cumulative return we show for the "Long & Short" column on row 3/30/2000.
  • » For margin strategies the return for each signal is doubled. In the previous example, the cumulative return for the "Long & Short with Margin" strategy is 219.56% (2 x 109.78%) compounded by 42.48% (2 x 21.24%), that is 355.32% as shown in the table.
  • » For "Long only" strategies we're in cash during Sell signals which is why the cumulative return remains the same as it was after the previous Buy.

Warm wishes and until next week.

The TimingCube Staff

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