Hey Kerry, that's great news! That is an easy mistake to make, and in fact if you read the dyno mule chapter of my book, concerning my brother's 428 (428 Tbird engine), you will see that he had a similar problem. We had to figure that one out on the dyno too.
Given the use of an aftermarket harmonic balancer, I think it would be worth your while to put a piston stop in #1 and try to determine if you are really at TDC when the pointer says you are. Alternatively, you can just keep advancing the timing and see if you get more power. If you run race gas in the engine, say 110 octane, you can overadvance the timing and you won't hurt the engine, it will just stop making more power. So you might think about advancing the timing even more, in 2 degree increments, and see if you pick up a little more power yet. If not, then go back to 38, but if you do pick up power, your timing pointer might not be at 0 when the engine is at TDC. Based on your combination, I think there's more there, so it would be worth some more experimenting...