TimingCube - The cash alternative - trendlessness, Dow Jones Industrials index, stop-loss, inverse ETFs

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Signal Update

Current Signal Performance as of

Signal Type	Trade Date	Index	Return since issued
		Nasdaq 100
		Russell 2000
		S&P 500
		QQQQ

Cumulative Returns since First TimingCube Live Signal () as of

Index	Long Only	Long Only with Margin	Long & Short	Long & Short with Margin	Buy & Hold
Nasdaq 100
Russell 2000
S&P 500
QQQQ

Note: QQQQ returns are included for continuity sake.

Market Update

Despite building anticipation for Tuesday's Federal Reserve Board rates decision, the week began with a bang, a strong broad-based rally on higher volume, just what we like to see when our Model is bullish. When it came, the Fed announcement of their 12th consecutive hike in the benchmark interest rate turned out to be a non-event. Despite a short lived spike on the news, markets ended Tuesday down slightly, which turned out to be the week's only losing session. From then on the bulls took firm control of the proceedings and the market indices surged ahead on increasing and above average volume on Wednesday and Thursday. The week concluded on a seemingly lackluster Friday with the indices managing to eke out small gains except for a fractional loss for the Russell 2000 which, considering the impressive advance of the previous two sessions is a further positive sign of market strength.

Markets were helped by lower oil prices, including the first dip below $60 a barrel, its lowest level since July. Another notable and promising aspect of the week's advance was the breadth of industry participation with retailers, transportation and technology stocks providing new leadership. The three primary indices we track managed to rise above their 50-day moving averages which had acted as a strong resistance zone for much of September and October. For the week, the Nasdaq 100 index led the pack higher with a substantial 4.55% advance, followed by the Russell 2000 gaining 3.63%, and the S&P 500, which was last week's winner, now trailing with a modest 1.81% increase. The week's bullish action reinforced our current Buy signal.

Trend Timing School

The cash alternative

Looking at the stock market action (or lack thereof) over the last couple of years many investors, Trend Timers included, have been barely treading water. Depending on which specific investment vehicles you use and your actual timing, counting commissions and other fees you might even be below water right now. In such prolonged periods of trendlessness many investors wonder if it would not be simpler to just stay in cash and wait out this unproductive phase until the next clear trend emerges. In fact, in addition to the existing Buy and Sell signals, why don't we simply produce a "Trendless" signal which would guide us to cash and spare us from having to deal with the trading and aggravation of these fruitless starts and stops? And what's more, there would be no commissions, no expenses, no hassle, no potential losses, in short: a "Trendless" signal is free. Or is it really?

While some of us might be very involved with the day to day news, or even concerned with the daily volatility of the markets, the longer perspective offers us the true vision of what really has been happening: not much at all.
Chart 1 below depicts the channel bound nature of our stock markets over the last couple of years. The large companies represented by the Dow Jones Industrials index have been absolutely flat, confined to a narrow 10% channel. One dollar invested in the Dow Jones in early 2004 is probably worth close to $1 today. The same pattern applies mostly to all broad market indices. At least the Nasdaq 100 is showing an upwardly sloping channel instead of a horizontal one. Even the comparatively lucky Russell 2000 investors feel they are stuck in a rut (sorry for the pun). OK, for the non-nerds out there who are still wondering, ^rut is the Russell 2000 ticker symbol. The point is that even with the gently up-sloping channel of the Russell 2000, we linger more or less where we were two years ago.

Chart1: Markets stuck in a two year channel

Yes, our system incorporates a Cash signal, but these are really stop-loss protective measures (see the "Model" page for explanation of the Cash signals). They are designed expressly to protect us from a signal gone bad (our Model has never triggered a Cash signal during our entire live and backtested history). A Cash signal does not announce a trendless market, it simply invalidates the previously issued signal. You can only tell a trendless market after it happened. A "Trendless-market-ahead" signal would have to be a pure prediction. As a trend following system we do not forecast, and we certainly do not forecast trendless markets. There is no early indicator for trendlessness.

Besides the fact that nobody can forecast the future accurately, sitting in cash presents one overwhelming drawback, and that is opportunity cost. We already know that the next big move will begin in a trendless market. By definition, if we were sitting in cash waiting for the big move to become obvious, we would be guaranteed to miss it. By the time the big move is apparent to everyone, the profits will have been made.

While not all the new trends detected by our Model develop into significant and profitable trades, our trends have detected all the big moves in the past. It might well take a few more tries until markets decide to deliver a meaningful advance (or decline), but as Trend Timers we are committed to participate fully in the next big move and benefit from the start.