The Second Place Winner of the VectorVest 2008 Bear Market Beaters Contest is Mr. Eugene Blyar from Greenville, Alabama. Mr. Blyar has been a subscriber for a little over three years now and his strategy is named Blyar's Bottom Feeders/BMB. It showed a gain of 27.59% from November 1, 2007 through March 7, 2008. That's very good compared to the 13.06% loss in the Price of the VectorVest Composite over the same time period.

The most striking thing about Eugene's strategy is that it uses an approach which is the completely the opposite of the one used by Richard Leclercq, last week's Third Place Winner. Eugene's strategy sorts stocks by RV/RT Desc., which is a bottom fishing sort that places the most undervalued, most beaten down stocks at the top of your screen. Richard's strategy sorts stocks by RT*CI Desc., which is a high momentum sort. It places the hottest stocks with the most consistently rising prices at the top of your screen. So Eugene is looking for dead cat bounces and Richard is looking for high fliers.

Another interesting comparison is that Blyar's Bottom Feeders/BMB uses very tight Gain/Loss limits of 9% and 4% as the exit criteria while Richard's Rangers/BMB uses an extremely wide Gain/Loss range of 70% and 35%. It seems reasonable that a tight %G/L range would work well in a bottom fishing strategy while a wide %G/L range would suit a momentum strategy. Nevertheless, I wanted to make sure. So I ran Eugene's strategy with Richard's sort. The result was disastrous. The combination of buying high fliers with tight %G/L Stops lost money right from the beginning, and it was down 33.66% on March 7th. I then ran Eugene's strategy with Richard's exit criteria. This combination of buying beaten down stocks with a wide %G/L Stops combination also lost money, but not nearly as much...losing only 16.90%. So both Eugene and Richard were right in using the exit criteria they selected.

Another interesting point is that both Eugene and Richard used a %G/L ratio of 2.00 or greater. This fact is especially important in Eugene's strategy because the win/loss ratio was about 1/2. A major drawback that concerns me with Blyar's Bottom Feeders/BMB is that it generates an insane number of trades, like over 360 in just four months! I haven't had much time to work with Blyar's Bottom Feeders/BMB but I did try widening the %G/L spread. This change lowered the performance to a 17.57% gain, but the number of trades was reduced by about 50%.

In comparing these two strategies, Blyar's Bottom Feeders/BMB is clearly for very active traders who are happy with small gains. Richard's Rangers/BMB is for home run hitters who don't mind striking out from time to time. I find both strategies intriguing and will work with them as I go along. Meanwhile, Mr. Blyar will receive a $50.00 VectorVest Savings Certificate and a check for $1,500.00 for his Second Place Winning strategy, Blyar's Bottom Feeders/BMB.

SIGNS OF DANGER.
The percentage of Buys decreased in Monday's trading and so did the percentage of Sells. This is a sign that money rotated out of rising stocks and went into falling stocks. On Wednesday, the percentage of Buys went up and so did the percentage of Sells. This is a sign that money moved out of falling stocks and into rising stocks. At the same time money rotated out of our top rated, high VST stocks as evidenced by the losses they suffered. These phenomena of rotation, focusing and wide-spread profit taking on high VST stocks are all Signs of Danger.

P.S. For more information, see my essay of 12/13/96.

As we saw last week, Pedro's Pride is a very simple strategy that produced excellent results, up 382% in 39 months. The only problem I had with it is that it suffered badly during the bear market years of 2002 - 2004 with a max drawdown of over 40%. It had a clever twist to it, however, that I really like. It was out of the market from July 11th to August 11th each year.

Mr. Yale Hirsch, creator of the Stock Trader's Almanac, has made it common knowledge that the market performs much better from November to May than it does from May to November. So, I thought, why not give it a try? I'll own the top 15 VST stocks only from November to May. Alas, this strategy mitigated the drawdown problem, but it returned a paltry 196.5% from January 5, 1996 to May 5, 2006, (I traded on Fridays only). Nevertheless, I still liked the idea of being out of the market during the summer months.

Mr. Hirsch's Stock Market Almanac also indicates that July and September have been the worst performing months when trading the Nasdaq and August and September were the worst performing months when trading the DJIA. So why not be out of the market during July, August and September? When rebalancing the top 15 VST stocks in this fashion, the results were stunning! I got a 911.9% gain from January 5, 1996 to June 8, 2006 with 66.1% winners and a max drawdown of only 21.43%. This strategy sailed through the 2002 - 2004 bear market like a piece of cake, the equity curve is a thing of beauty.

To be fair, I must report that we also tested Pedro's Pride over the same time period and it produced a return of 1,054.2% with 68.5% winners. But the max drawdown was 43.5%. I know I can't handle that, so I would not invest my money using that strategy. But I definitely will use the new strategy illustrated as this week's "Strategy of the Week," called Summer Hiatus.

P.S. Next week I'll write about how to further improve profits and reduce risk when rebalancing high VST-Vector stocks.

HOW TO FIND EXPLOSIVE LOW-PRICED STOCKS.
It's easy to get discouraged when the market is getting hammered the way it has over the last four weeks, but it's not necessarily a bad time to find some great winners. In July 1998, when the market was getting killed, I discovered QLGC at $3.44 per share on a split basis. It went on to triple in less than a year and ultimately peaked at over $95 in March 2000. In the summer of 2002 when the bear market was at its worst, I found SINA and SOHU at less than $2.00/share. Both stocks turned into 20 baggers. Finally, there's NTRI, which I found at $2.25/share in October 2004. It recently hit a high of over $75.00.

I've written about how to find stocks such as these on many occasions and have demonstrated the techniques numerous times. If you're interested in learning how it's done, attend the Technical Analysis Course in Ft. Lauderdale next Friday and Saturday. No matter what the market does, you can always make money if you know How to Find Explosive Low-Priced Stocks.