As noted last week, we went long in the Yellow Brick Road portfolio on Thursday, July 23rd, with selections from the "Explosive GRT & EPS Stocks" Strategy. It was a short, bumpy ride...we were back in cash within a week.

The portfolio soared 10.8% on Thursday, rose another 6.3% on Friday and skyrocketed 15.9% on Monday of this week. Then it plunged 11.8% as we sold nine stocks on Tuesday, either to take profits or to stop losses. We sold our last position on Wednesday with another loss of 1.4%. Overall the campaign ended with a net gain of 19.8% in five days, which is not bad at all. But I didn't like it. This is not what the YBR is all about.

The Yellow Brick Road strategy was envisioned to be one that could help Prudent investors make money in both up and down markets. It was meant to be easy to use, not demand a lot of time and could be done at night when the market is closed. Unfortunately, it appears that thousands of investors jumped into the market and bought stocks from the strategy I had selected to use. This is OK if you have learned how to anticipate what I'm going to do and didn't get caught in a traffic jam, but you're not going to get the best results if you wait to see what I did. The outstanding performance of the Explosive GRT & EPS Stocks as shown in the VectorVest RealTime Derby on Monday gave evidence that our subscribers were moving the market in these stocks.

To mitigate this problem in future YBR campaigns, I will use only strategies that specify the selection of stocks with Price > $10.00 per share and AvgVol > 1,000,000 shares per day. As a point of reference, the top 10 stocks from the Explosive GRT & EPS Strategy that we used last week, had an average price of $1.89 per share and an AvgVol of 621,090 shares per day. Even though I will be making this adjustment, it doesn't mean that you shouldn't feel free to use any strategy you wish in your next campaign with The Yellow Brick Road Portfolio.

RISING CI STEALTH STOCKS.
The Comfort Index, CI, is one of our most intriguing indicators. It was first introduced to our users on November 8, 2002 and was said to be a measure of the long-term price stability of a stock. Over the last seven years we have had an opportunity to watch its performance in both good times and bad. When the market is bullish, the Comfort Index of the best performing stocks climbs higher and higher and approaches 2.00 on a scale of 0 to 2.00. When the market is bearish, the Comfort Index of all but the strongest stocks tends to go lower.

A great way to buy good stocks at low prices is to find stocks that are flying beneath the radar, but whose Comfort Index has begun a steady rise from a bottom. I've done this in a variety of ways and today we are introducing an excellent new strategy that does just that. It's called, "Rising CI Stealth Stocks."

We went long in the YBR portfolio yesterday with selections from the "Explosive GRT & EPS Stocks" Strategy. The VectorVest RealTime Derby made the decision to pick this strategy as simple as pie.

The "Explosive GRT & EPS Stocks" portfolio clearly had the highest performance rating of the strategies recommended in Wednesday night's Views. We calculate a portfolio's performance rating by multiplying the percent winners times the percent gain. Since the RealTime Derby calculates the percent winners and the percent gain on a tick by tick basis and delivers the results on a second per second basis, we were able to make our decision quickly and easily.

If you are not using VectorVest RealTime, you can obtain a close approximation of a portfolio's real-time performance by using our Portfolio Tracker, which is free. Another option would be to use Yahoo!Finance. In this case you'd have to manually build a WatchList of the stocks from each strategy and check them when the major indexes all gain more than 1%. This event happened yesterday at 10:09 AM, so we jumped in.

Now we are faced with the task of managing the portfolio. You may recall that the original exit strategy for a long YBR portfolio was to sell any stock that had achieved a 50% gain or a 30% loss. Stocks that were sold from the portfolio were not replaced. In real life, I found that I could not handle using a 30% Stop, so I began to use tighter Stops. I finally settled on using Stops that were 10% below the higher of the purchase price or the highest closing price attained thereafter. This seemed to work quite well, but I don't know if it gave the best results as far as risk vs. reward goes.

Even though I did some investigative work on this issue, I asked Mr. Glenn Tompkins to look into it more thoroughly. My ultimate goal is to get the maximum profit at the minimum risk. I'm sure that Mr. Tompkins will be able to help me find the sweet spot in Managing the Yellow Brick Road Portfolio.

OK, OK, we went long yesterday even after talking about planning for a downturn four weeks ago and preparing to go short just last Friday. So what happened?

As Bernie Lo, the affable host of Bloomberg's Asia Confidential TV show, said the other day, "The market looked like it was going to hell hand over fist just a couple of days ago, and now everything is going up." Yup, I was there watching Bernie last Sunday night and everything was going, uh down. Asian markets were crashing and U.S. Futures were down, big time. His guests were bearish and even some of Bloomberg's experts were expressing fears of a serious downturn. But it hasn't happened so far. Why?

U.S. Futures were still going down early Monday morning when a guest on CNBC's Squawk Box Show, Ms. Meredith Whitney, America's leading bank analyst, issued a Buy recommendation on Goldman Sachs and said nice things about banks in general. U.S. Stock Futures prices immediately took off and the Mighty Dow soared 185.16 points for its single biggest gain in a month. Of course, I watched this in utter amazement, and didn't go short in the Yellow Brick Road (YBR) portfolio as I had prepared to.

Trading was wishy-washy on Tuesday, so I thought the "Whitney" rally was over, and it was. But stock prices did rise modestly on Tuesday and the Primary Wave went from Dn to Up. So we advised Prudent Investors to get their shopping lists ready, Aggressive Investors and Traders to play the market up or down as it developed, and we decided to wait for a DnDn situation to reappear before considering going short in the YBR portfolio. Tuesday was clearly an inflection day and I needed to see whether the bulls or the bears were going to prevail on Wednesday.

There was only one problem. Tuesday's business wasn't quite completed at 4:00PM. After the market had closed, Intel reported stronger than expected revenue and profit margins for the second quarter and its CEO, Mr. Paul Otellini, presented a bullish outlook for the rest of the year. INTC jumped $1.19 per share and U.S. Stock Futures soared.

The market gapped higher at Wednesday's open and I couldn't do anything in the Model Portfolio but close my positions as soon as I could. That, however, doesn't mean you couldn't have made some very good trades. On Tuesday evening, Mr. Don Thornton, one of our bright, young Product Support Specialists, gave an excellent analysis of Tuesday's market action in his Daily Color Guard Report and he observed that all five of the top performing Strategies were Bottom Fishing, low RT, strategies. He also noted that three of the top five performers on Monday were Bottom Fishing Strategies. So he suggested that, "if you do want to play the market to the upside tomorrow, Bottom Fishing, low RT, stocks should lead the way." Boy, did they. The results were incredible.

As far as the Model Portfolio is concerned, we went long yesterday with Blyar's Bottom-Feeders/BMB. But it wasn't until 3:40PM that we got the signal to do so. I was watching a real-time graph of the Price of the VectorVest Composite most of the day, and I could see the market start to rally around 1:45PM. Later I learned that bullish comments by super bear, Mr. Nouriel Roubini, gave stocks prices the kick they needed to trigger the afternoon rally.

VectorVest RealTime made it very easy to decide which Strategy to select for the Model Portfolio. I had been watching the V V RealTime Derby and Blyar's Bottom Feeders/BMB was leading the pack most of the day. At one point it was up as much as 12.9%. However, it was up only 4.22% with 60% winners when we made our decision to go with it. The V V Derby is such a wonderful tool. It performs real-time Quick Tests on 176 ten-stock portfolios and displays the results so you can see exactly what's going on at all times. Along with the gain/loss performance of each portfolio from the prior day's close or the current day's open, it displays the stocks in each portfolio and the pricing data and gain/loss percentage of each stock. A mini performance graph is also displayed with the portfolio data. Fantastic!

Even though the Mighty Dow had made an incredible gain of 565.30 points in its four day run, the Price of the VectorVest Composite was still 25 cents per share below its June 11th's close of $20.33 per share. So the downturn hasn't been wiped-out just yet. But it is interesting to note that it took 20 trading days from June 11th to get last Friday's C/Dn signal. The reason is that the Price of the VectorVest Composite spent more days going up than it did going down. From June 11th through yesterday, the Price of the VectorVest Composite experienced 11 down days and 13 up days. Now that's what I call A Reluctant Downturn.

Like a train pulling into a station, the C/Dn signal arrived this morning, just as we expected. Of course, it won't be official unless the Price of the VectorVest Composite closes below yesterday's close, but it looks like a reasonably good bet that it will. Even if it doesn't, this is a good time to refresh our memories as to what "The Yellow Brick Road" is all about.
The Yellow Brick Road was introduced to our users in my essay of October 3, 2008. It was defined as a trading system which allows investors to make money in both up and down markets. I said it was easy to use, does not demand a lot of time and can be done at night when the market is closed.

The whole idea with the Yellow Brick Road is to buy high VST, "B" rated stocks on a C/Up signal, manage them according to a precise set of rules, go into cash; then sell-short low VST, "S" rated stocks on a C/Dn signal. The buy to go long Strategy was named "Easy Does It - C/Up" and the sell to go short Strategy was named "Easy Does It - C/Dn." Both are located in a UniSearch Group called, "Yellow Brick Road."

The rules for managing the long strategy were documented in VectorVest Views on September 26, 2008 and demonstrated at the VectorVest University on the same date. The short strategy was documented in the VectorVest Views on October 3, 2008 and demonstrated at the VectorVest University on the same date.

Three campaigns, two C/Up and one C/Dn, have been conducted since last October. These campaigns are documented in the VSA Model Portfolio Group of the Portfolio Manager Tool. The equity graph of the Yellow Brick Road - 2009 Portfolio shows that the first campaign, a C/Up, lost money while the latter two have produced substantial profits. A net gain of 26.13% is currently being shown for the portfolio.

Valuable experience was gained from these campaigns, so there are some things we will be doing that are different from those described last year. For example, we will not necessarily go short with the "Easy Does It -C/Dn" strategy, if and when we do go short. Five different strategies that could be used to go short with will be cited in the Strategy Section of today's Views so that our subscribers do not "move-the-market."

We will not go short on Monday, "come-hell-or-high-water." We will go short only if the market is going sharply lower as indicated by the major averages being down more than 1% each. The exit criteria we use to manage the portfolio will depend upon the strategy we go short with. If we go short with "Worst Performing Contra ETFs - C/Dn," for example, we will use the technique being employed in the "Riding-the-Wave" portfolio. In any case, we will describe whatever exit criteria we use.

Well, it looks like the bulls gave it a pretty good try to get into the green today, but they came up four cents short. So we now have a C/Dn signal and we'll be getting ready for the upcoming Yellow Brick Road - C/Dn Campaign.

WORST PERFORMING CONTRA ETFs - C/Dn.
Q. Why would anyone want to buy the ETFs found by the "Worst Performing Contra ETFs - C/Dn" Strategy when the market goes down?
A. Because these ETFs are the ones that are most likely to go up the most as stock prices fall.

Q. Why is that?
A. First of all, they are virtually certain to go up in price as stock prices go down because of the use of Put Options, Short positions and other contra mechanisms. Secondly, they are the ones to most likely go up the most because they have been beaten down in price the most.

Q. How do you know that?
A. Because they are sorted by RT*CI Asc. Low RT means that their prices have been clobbered. Low CI means that they have been getting clobbered for a long time.

Q. Yeah, but why would you want to buy these guys?
A. Well, it's really the same as Bottom-Fishing except it's the opposite because we're buying Contra ETFs when the market has peaked. If we want to "Buy Low and Sell High," we want to buy the Contra ETFs that have experienced the worst price performance. They will soar as the market goes down.

Q. Can you prove it to me?
A. Yes we can. Mr. Gordon White will do exactly that in this week's Strategy of the Week presentation. He will also reveal some amazing secrets on using Worst Performing Contra ETFs - C/Dn.