The entire TimingCube Staff expresses its gratitude
for the privilege of serving you during 2009 and
wishes you Happy Holidays
and a Healthy and Prosperous
New Year 2010

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

Market Update

Small caps and tech stocks outperformed this week, allowing the Nasdaq Composite to finish at its highest weekly close since September 2008. Monday saw all major averages move higher on news that Abu Dhabi would come to the rescue of debt-ridden Dubai, relieving fears that the world economy might face another financial crisis. The S&P 500 rose 0.7% on the day. Stocks gave up part of their gains during the next session as a stronger dollar and a higher-than-expected PPI (Producer Price Inflation) reading took their toll. The Federal Reserve announced Wednesday that it was leaving interest rates unchanged, a decision that did not surprise anyone. If stocks ended the session little changed, they moved lower the next day as the market was hurt by weekly jobless claims that came in higher than anticipated and by another rise in the dollar. The S&P 500 slipped 1.2% as a result. After the close, both Oracle and Research In Motion released strong earnings reports, setting the stage for a solid showing by tech stocks Friday. Indeed, the tech-heavy Nasdaq 100 gained 1.6% during the session. Trading volume was especially heavy as Friday was a so-called "quadruple-witching" day, which marks the simultaneous expiration of options and futures.

The Russell 2000 (IWM) and Nasdaq 100 (QQQQ) respectively gained 1.68% and 0.75% over the five-day span, while the S&P 500 (SPY) lost 0.81%. All three ETFs remain located above both their 50-day and 200-day exponential moving averages (EMAs).

For its part, our World portfolio underperformed its U.S. counterparts this week with a 2.01% loss. The portfolio consists of the 5 top-ranked world ETFs as of December 4, which marked the beginning of the current 4-week holding period.

Our current Buy signal remains in effect.

Trend Timing School

Stocks have been good, but income has been the real star

Most traditional stock investors would like to forget the decade that is now winding down. The 2000s have brought two vicious bear markets leaving stock investors under water if they followed the typical buy-and-hold-the-market strategy that the vast majority of individuals and their brokers/advisors espouse. That's overly harsh, perhaps, because most financial planners and advisors are really asset allocators rather than strict stock-only investors. While they may have little to show for their efforts in the stock market, their bond portfolios should be singing sweetly. Bonds are ending the decade on a strong note as the market bids up almost anything that generates income.

If you think that stocks have put on a show in rebounding dramatically from last year's market crash, income investments have delivered an even more dynamic performance. Chart 1 shows three different kinds of income funds compared to the broad total stock market index. All the income funds have performed at least as well as stocks with some of the income choices dramatically exceeding stocks since the market turned around earlier this year.

Chart 1: Income funds compared to stock market



Thinking of income investments as being more than mere interest-generating vehicles can lead to a whole new approach to the markets. Taking a decade-long look at income investments compared to stocks shows income having delivered returns a full 70-80% above stocks. And doing so with far less risk in almost all cases. Chart 2 provides a picture of the decade in stocks and income with the two bear stock markets shaded. The first bear market was a question of stock market valuation and stocks bore the full brunt of the bear's fury. The second bear market was a financial crisis, of course, that took down virtually all asset classes, including a frightening panic in the credit and income markets.

Chart 2: Decade in stocks and income



The income investments have delivered as much as an 8% annual return through one of the worst market decades on record. How do we incorporate income into our portfolios? Traditional financial planning metrics such as the Rule of 100 (100 minus your age = proposed stock allocation) would suggest a 50-year old investor allocate 50% of their portfolio to stocks and 50% to income. With our signal in your toolkit, we have shown that investors can deliver phenomenal stock returns. For example, the basic Nasdaq 100 ETF has delivered a 35% annual return when managed using our signal.

By taking an asset allocation approach to your portfolio and using our signal for your stock portion, (and even some income pieces re: our recent discussion of high yield bonds) you can experience dramatic returns with much lower volatility and risk. Now for the caveat: beware that interest rates are just about as low as they can go. Higher interest rates might well mean weaker performance from some income investments going forward. If you need help with building an asset allocation portfolio or incorporating income into your plans, drop a note to our friends at MARKETTREND Advisors at info@markettrendadvisors.com.

FAQ of the Week

Question: What are Build America Bonds?

With state and local economies struggling after almost two years of difficult economic conditions, municipal and state governments are facing budgets that have been stretched to the breaking point. Adding insult to the injury, the bond insurers that were a key cog in the municipal bond market have suffered major damage with some having gone completely out of business. Thus, we have a desperate need for capital in an environment where that capital has fled into hiding. As part of the federal government's economic stimulus package earlier this year was a lifeline for these struggling municipalities. Enter Build America Bonds. Whereas municipal bonds typically attract investors through their tax-free status, Build America Bonds are fully taxable. But the federal government subsidizes 35% of the interest on the bonds. Thus, the cost to the states remains low. The taxable status actually benefits municipalities as well by opening up the muni bond market to overseas investors. International investors can view these Build America Bonds as quasi-Treasury bonds but offering a higher interest rate. These investors would not usually benefit from the tax-free nature of typical muni bonds and would, therefore, avoid them. However, with the new approach, they become interested in Build America Bonds. The result has been strong muni bond issues from beleaguered states such as California, who would otherwise have a very difficult time finding investors without shouldering a huge interest cost (and further exacerbating their budget troubles). The question now is whether this lifeline, set to expire at the end of 2010, will get extended and perhaps even made a permanent part of the muni bond landscape.

Warm wishes and until next week.

The TimingCube Staff