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

Market Update

Stocks returned to their losing ways this week, despite an initial climb ahead of the U.S. presidential election. Indeed, the major averages moved higher until Tuesday's close, resulting in a 6^th consecutive day of gains for the Nasdaq Composite. With uncertainty regarding the presidential race outcome removed after Barack Obama was elected as 44^th President of the United States Tuesday night, investors could again focus on the weakening economy. Doing so, they bid stocks lower Wednesday, with the S&P 500 shedding 5.3% during the session. The fact that Cisco Systems warned that sales for the quarter would miss analysts' views certainly did not help. With pessimism returning to the markets, stocks continued dropping on higher volume Thursday. By the close, the S&P 500 had lost another 5%, therefore posting a 10% drop in just two days. The latest employment report was released Friday morning. It showed that 240,000 jobs were lost in October, 40,000 more than expected by economists, and that the unemployment rate jumped to a 14-year high of 6.5%. Despite the weak readings and more bad news from General Motors, the main indexes managed to post gains for the day, albeit on reduced volume.

The S&P 500 (SPY), Nasdaq 100 (QQQQ) and Russell 2000 (IWM) respectively lost 3.07%, 5.17% and 5.82% on the week. 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 2.67% loss 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. The World portfolio is being rebalanced today, as the current 4-week holding period is now over. 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

Mechanical investing

Mechanical investing can broadly be defined as any method of buying and selling stocks based on a set of rules applied to market data and technical indicators. At TimingCube we are strong proponents, as both our trend following signals and our momentum World ETF models are 100% mechanical. Since emotions are a well known enemy of sound investment decisions, mechanical systems benefit us in two ways: by making unemotional investing decisions and by helping us manage our emotions as investors.

Yes, humans create the mechanical model and their knowledge, logic and strategies dictate the rules. But once established the rules are rigorously applied and the mechanical system is protected from human judgment, opinions, bias and other vagaries.

Sometimes the terms technical analysis and mechanical investing are used interchangeably, but they are in fact quite different. First, the two are not mutually exclusive and one can be the other. Specifically, our purely mechanical investing model is entirely based on technical analysis, but not many technical analysis approaches are purely mechanical. For the most part, professional traders and institutional investors use a blend of fundamental and technical analysis. Even those using predominantly technical tools will consult a number of their preferred indicators, which frequently contradict each other, and interpret the data in search of the trend. The devil lies not only in the details, but in the interpretation which inevitably gets tainted by emotions.

We write Trend Timing School articles because we believe that a broader understanding of the stock market, knowledge of predominant investment strategies, and the discipline to follow an investment system reliably and unemotionally are key ingredients of a successful wealth building venture. With our normally open disposition we understand that, at some level, the black box proprietary nature of the model is irritating because we all want to know all the details and all the answers. There are times when it is best not to know too much, and this is one of them. We know from long experience in these things that divulging the secret sauce does not work when it comes to market timing systems. Stock market history is littered with timing schemes which, when publically revealed, ceased to work. The market in short order adapts and circumvents transparent strategies, especially those adopted by large numbers of investors. Still, the more important benefit of not knowing the inner workings of the mechanical rules is that it removes the temptation to anticipate, outsmart and second-guess the model. Make sure to read "How close to the next signal are we?" below.

Another key advantage of a mechanical system is that it can be tested on any time period for which data is available. This means that a mechanical system can more easily be developed and refined. Ideas can be readily tested over market history and results compared with other approaches. This means that a mechanical system should be as good as can be for the known history of the stock market. In contrast, systems of a more subjective nature or which require interpretation of qualitative market indicators cannot practically be backtested.

To be fair, we need to address criticism advanced by opponents of mechanical investing.

One such criticism is that mechanical approaches are inflexible and static. But this is by no means inherent of a mechanical system but would be a short coming of its design. At TimingCube we believe market timing models should be adaptable. One way our models are made dynamic and adaptable is that parameters are adjusted as market conditions change. For example, price and volume movements are less sensitive at higher volatility levels than at lower.

Another aspect of adaptability is that markets evolve and change characteristics over time and a model should adapt. We are firm believers in continuous improvement and we never stop learning from the markets and looking for ways to enhance the model. Still, any improvements must comply with our stringent rules:

• Stay true to our Trend Timing principles of delivering a 100% mechanical system
• Focus on mid-term trends for infrequent trading
• Do not engage in curve fitting or other tempering with historical model behavior
• Insure that enhancements improve the entire backtested period

And we agree that mechanical systems should not be left to run in "open loop", without adult supervision as has been the case at some hedge funds lately. Models cannot always be right and they require built-in safeguards. One such feature we incorporate is the stop loss Cash signal at 9% from entry.

In the end it is probably the clarity and simplicity of the mechanical model which we value the most. With our mechanical model, and the unambiguous Buy/Cash/Sell signals it issues, we know precisely at all times what our market position should be.

FAQ of the Week

Question: How close to the next signal are we?

Not knowing the exact ingredients and recipe of our timing model can make some people nervous. Especially at times like these when markets are highly volatile, many are dying to know what is coming next, and when. The suspense is killing them. Give us at least some early warning signal they beg, or an indicator (on a scale of 1 to 10 would be nice) to know how close to a signal we are. Are we getting warmer yet?

Alas, one of the beauties and curses of trend following is that no one can get a peek at the future. Since our mechanical model does not know in advance when and what type of signal will be issued next, the only thing we could offer in our commentaries are our guesses and opinions. Guesses and opinions, however educated they may be, have historically been proven poor guides for investment decisions. And they certainly do not mix with a mechanical investing system like ours.

Another key advantage of not knowing the "degree of closeness" to a signal is that it removes the temptation to anticipate, outsmart and second-guess the model, all of which generally result in tears. Trust us; it is better not to know .

Warm wishes and until next week.

The TimingCube Staff