TimingCube - Quantifying the markets ups and downs - trend timing,current trend,cyclical patterns,bull markets,bear markets

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What's new this week?

We listed a new article that recently appeared in Better Investing Magazine in our "In the News" 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

Not surprisingly, the week was characterized by low trading activity as U.S. investors took time off to enjoy the Thanksgiving holiday. Despite the lack of major corporate and economic news, markets proceeded to move higher, keeping the current rally alive and well. The Russell 2000 finished at a new all-time high on Friday while the Nasdaq 100 reached its highest weekly close of the year. The S&P 500 and Nasdaq 100 respectively gained 1.05% and 1.68% on the week. The Russell 2000 continued to outperform, with a gain of 2.89%.

The week's quiet market action did not induce any changes for our Model and our Buy signal consequently remains in effect.

Trend Timing School

Quantifying the market's ups and downs

The Trend Timing system originated in the study of stock markets, and many statistical facts help us better understand their long-term behavior as well as the importance of relying on the current trend as an investing guide. To the casual observer, daily market gyrations appear to be totally random, but a careful examination of what actually happens unveils a strikingly different picture. Somewhere in the madness there clearly seems to be some organization, and some repeatable yet changeable cyclical patterns emerge.

As can be seen in the table below, while the number of up and down days has almost been even during the last five years (51% versus 49%), the longer 15-year view exhibits a stronger bias towards up days (55%) versus down days (45%). This is one of the statistics which Buy and Hold advocates utilize as a foundation for their investing conviction: "Since over the long run markets go up more frequently than down, simply Buy and Hold for guaranteed profits". Ironically, this also happens to be the very statistic that compels us to attempt to avoid the down stages. The most obvious market hint for Trend Timers is the fact that somehow these random-looking daily ups and downs have a way to group into periods that see pronounced upward movements known as bull markets and declines known as bear markets.

	5 years	15 years
Percentage of time spent in Bull/Bear markets
Bull	43%	71%
Bear	57%	29%
Percentage of time spent in Buy/Sell signals
Buy	53%	75%
Sell	47%	25%
Percentage of Up/Down days
Up	51%	55%
Down	49%	45%
*Percentage of time spent in TimingCube Quadrants*
Quadrant 1 (Bull/Buy)	35%	64%
Quadrant 2 (Bull/Sell)	8%	7%
Quadrant 3 (Bear/Sell)	39%	17%
Quadrant 4 (Bear/Buy)	18%	12%

Over the very long-term (the entire twentieth century as measured by the Dow Jones Industrial index from 1900 to 2000) the market was in a bull market 65% of the time and a bear market 35%. This average contrasts nicely with the swings we have experienced more recently. Looking at the last fifteen years, which included the uninterrupted bull run of the 1990s, bulls where in control 71% of the time (using the Nasdaq-based EMA crossover definition for bull and bear markets we introduced in the October 31, 2003 TTS editorial). During the last five years which featured the bursting of the high-tech bubble, the picture has reversed with the bears in charge for 57% of the time (not exactly good for Buy and Holders).

Looking at our signals we see Buy conditions 75% of the time since 1989, but only 53% of the time in the last five years. The alternating of bull/bear market cycles and Buy/Sell signals has given rise to "The four market quadrants of Trend Timing" (see definition in the December 19, 2003 Update). The four-quadrants-in-a-square representation does not properly convey the notion of time which we attempt to depict in the charts below. One glance reveals the vast differences between the 5-year and 15-year periods. For the most recent phase, bulls only appeared 43% of the time (Quadrants 1 and 2) but, for the longer 15-year span, the reverse was true with a broad 71% domination. You can also readily spot the fact that the market's two strong natural conditions, Bull/Buy and Bear/Sell, tend to be in place much longer than the weaker corrective phases represented by the Bull/Sell and Bear/Buy quadrants.

The bottom line we derive from these market history facts is that bull and bear markets alternate at different times and durations, and that following the trend can put you on the winning side of the market more of the time.

FAQ of the Week