TimingCube - The Nasdaq Composite Index - Nasdaq composite,composite index,electronic stock exchange,market cap weighted,high-tech index

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Announcing Managed Accounts

Following the phenomenal interest you showed for such a service during our recent survey, we are pleased to formally announce the availability of Managed Accounts for TimingCube subscribers.

This new investment advisory and money management service provides a full range of products and strategies to meet your investment needs and objectives, but what makes it unique is its dedication and expertise in implementing the TimingCube strategies and signals.

To find out more about the service and on how you can become a Charter Member, please visit our newly added "Managed Accounts" page.

Signal Update

Current Signal Performance as of

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

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
QQQ

Note: QQQ returns are included for continuity sake.

Market Update

With all the uncertainty surrounding the presidential election now out of the way, markets moved sharply higher on brisk volume this week, also helped by lower oil prices. Employment numbers released on Friday showed that the economy added 337,000 jobs in October, far more than expected. The news helped further boost the ongoing rally. As a testament to the power of the move, the S&P 500 has managed to close higher for nine consecutive sessions, something it had not accomplished since June 1997! In fact, the S&P 500 closed the week at its highest level since March 2002, while the Russell 2000 finished just a hair under its all-time high. From a technical standpoint, the picture is much improved, with all major indices now resting comfortably above their 200-day simple moving average (SMA). It should also be noted that the Nasdaq Composite has finally broken out to the upside of the downtrend channel that had been in place since late January.

For the week, the Nasdaq 100 gained 2.59%. The Russell 2000 and S&P 500 did even better, finishing 3.51% and 3.18% higher, respectively. The week's action has confirmed that a new uptrend is now in place and our Buy signal consequently remains active. That said, the powerful move higher over the past two weeks means that major indices are now overextended and due for a pause, so we would not be surprised to see them pull back first before they resume their march higher.

Trend Timing School

The Nasdaq Composite Index

We frequently mention the Nasdaq Composite as the most important index for Trend Timers as it is the primary market data source feeding our Model. With all the market indices around, many older and more respected than the Nasdaq Composite, it is not instantly obvious how it differs from other indices or what, in our eyes, makes it a unique and accurate weathervane for the broad market trend.

The Nasdaq Composite Index (Yahoo! Finance ticker ^IXIC) was started in 1971 with a base value of 100 (compared to 2000 and change today). It was and still is composed of virtually all the companies traded on the Nasdaq stock exchange. The number of companies, 3,253 to be precise, changes over time so we prefer to just call it approximately 3,500 companies. More than most other stock market exchanges or indices. If you are interested in the entire list of companies and what percentage they represent, go to NASDAQ Composite Index.
To nearly everyone, the term "stock exchange" has come to represent one big institution housed in a single large building. The Nasdaq on the other hand, not requiring the physical expanse of a trading floor to accommodate human traders, looks a lot more like a network of computers than a big building. After all, it was the first entirely electronic stock exchange, and still is the largest.

For the historians we have to point out that NASDAQ used to be the acronym for "National Association of Securities Dealers Automated Quotation". For the spelling purists we have to mention that in recent years the acronym was dropped and Nasdaq is now used as a proper noun, which also explains why it is not capitalized anymore.

The large number and diversity of constituting companies makes the Nasdaq Composite a good proxy for the broad stock market. Yet, because it is a "market cap weighted" index, the largest companies on the Nasdaq have the greatest impact on the index value. Despite the 3,500 or so total companies, the top 10, with names such as Microsoft, Intel and Cisco, account for greater than 30% of the Composite's value. The flip side is that there are also thousands of small unproven and speculative firms which make the index highly volatile compared to other indices.

With the Nasdaq Composite's "high-tech index" reputation it is not surprising to find out that the Computer Hardware/Software segment dominates the index's industry composition with over 52%, followed by Healthcare - 14%, and Financials at 11%. This is clearly not an average cross section of corporate America. There are no "old guard" companies to be found in the index. Most companies are in recent or emerging market segments and as a whole they can be seen to represent an "avant-garde" of the economy.

The fact that the index actually represents such a small portion of the overall market and that it tends to be so volatile are reasons why traders with short-term orientations shun the Nasdaq Composite to infer how the overall market is doing. These are precisely the reasons that make the Composite ideal for longer-term Trend Timers. The combination of characteristics of the component companies makes for a unique blend of leading edge indicator for the market at large. As we have detailed in several articles (see the June 11, 2004 article "The Trend is contagious" as an example) there is an extremely high degree of correlation between the Nasdaq Composite Index and most world markets. The fact that it is comparatively more volatile makes it easier to spot directional changes as they occur in the market. TimingCube research has shown that the Nasdaq Composite offers a better trend indicator for other indices than can be extracted from the indices themselves. Slower moving indices such as the Dow Jones Industrial Average or S&P 500 make many actionable trend changes hard to discern in a timely manner. Our "Nasdaq Composite extracted signals" consistently timed the other indices better than the experimental signals derived from the indices themselves.

As is the case with industry and market segments, we know there are fluctuations and rotations in index leadership which coincide with the passing of economic cycles. Our research has shown that this cyclical ebbing and flowing does not seem to affect the Nasdaq Composite's ability to shine the light on the overall market direction. We suspect that over the course of many years, as evolution takes its course, the companies and industries which make the Nasdaq Composite the market's most vibrant index today will age and mature as have many before them, and the Composite will lose its luster as the beacon of the market's direction. We don't know if the index that someday will replace it at the bleeding edge of world economy already exists, but for now we'll stay true to the Nasdaq Composite.