At 26 weeks, the current downturn, which was signaled by a C/Dn on June 11, 2008, is the longest we have recorded in the VectorVest U.S. database, which goes back to June 1995. In fact, it's the longest downturn we have encountered since going into business in January 1988. When is it likely to end?

Well, I really can't answer that question, but I'll know it when I see it. I'll know it because our Market Timing System will give a Confirmed Up, C/Up, signal at that time. In order to get the C/Up signal, the Price of the VectorVest Composite must go up, week-over-week, on any given day for two consecutive weeks and the Buy/Sell Ratio, BSR, must go from below 1.00 to above 1.00. The beauty here is that we can see this signal develop as it happens.

The first step in this process is that the Price of the V V C must go up week-over-week for a single week. This event is noted in our Daily Color Guard Report by saying that the Primary Wave is Up, and the Up signal is then logged into the Trend column of the Color Guard Report. If we access the Timing section of last night's Views, we can see that the Primary Wave was Up on November 26th and 28th, and it has been Up for the last four days. As I write this essay, the Primary Wave is Up by a scant 10 cents per share. Nevertheless, five consecutive up days is very encouraging. Moreover, we could also see a couple of Green lights in the Price column.

The next significant step is to see the Price of the V V C go up week-over-week on any given day for two consecutive weeks. When this happens, we say that "The Price of the V V C has given a preliminary signal of a sustainable uptrend." If you look at our Market Timing Graph in the Weekly Mode, you'll see that a string of five consecutive Up weeks started on July 18, 2008. So I checked the Strategy section of the July 25, 2008 Views to see if we had properly documented the two week signal. Sure enough, these very words were there for all of the world to see.

Things appeared to be going pretty well with the incipient rally and our Market Timing Indicator, MTI, was even bold enough to close above 1.00 on August 11, 2008. But all was not well. The BSR was at a lowly level of 0.58 and it needed to go above 1.00 to confirm the rally. Moreover, the traditionally tough months of September and October were looming ahead. So what's all this got to do with what's happening now?

Right now I'm seeing shades of 1990. You may recall that the market peaked in July 1990 and the economy was in the tank due to rising interest rates. In addition to that, the banking industry was losing tons of money on foreign loans and the U.S. government was spending $200 billion trying to recover from the S&L Crisis. Finally, Saddam Hussein invaded Kuwait on August 2nd, threatening our oil supplies and caused stock prices to plunge. The BSR crashed to the lowest level, 0.04, I had ever seen in the short history of VectorVest.

Around the end of October an amazing thing happened: The BSR started to go up. It seemed crazy. With all the problems facing investors, why would stock prices be going up? We could ask the same question today. Whether we know the answer or not, the BSR has begun to rise again. It closed at a 48-day high of 0.10 on Wednesday, December 10th. Now that's not very high, but it is a good sign.

Other good signs are that the Price of the V V C closed above its 40-Day Moving Average on Wednesday, December 10th, and the MTI also closed above 1.00. Altogether, I'd say we're seeing Signs of a Revival.

TAMING THE TIGER - PART II.
We could get a signal of a sustainable rally as early as Monday's close. Are you prepared to buy great stocks at bargain prices? Can you cope with the volatility? Can you handle the risk? Never fear. Todd Shaffer is here. He will show us how to lock in the right time to purchase great stocks with relatively small cash outlays and minimum risk. Visit the VectorVest University to see Mr. Todd Shaffer's intriguing "Strategy of the Week" presentation, "Taming the Tiger - Part II."

If the stocks ranked lowest by VST-Vector are in stock market hell, the ones ranked highest must be in heaven. The top stocks ranked by VST-Vector are supposed to have the best combinations of Value, Safety and Timing, so what have the Contra ETFs been doing up there?

Contra ETFs are strange beasts that go up in Price when the market goes down. Not only that, but VectorVest doesn't compute a Value or Safety Rating for Contra ETFs or for any ETFs, actually, but assigns a Value equal to Price and gives default ratings of 1.00 for Relative Value, RV, and Relative Safety, RS, to all ETFs. So Relative Timing, RT, plays a key role in analyzing, sorting and ranking ETFs. When RT goes up, VST-Vector goes up. When RT goes down, VST-Vector goes down. VST follows RT up or down like a puppy on a leash.

So what kind of a VST does it take to make it to heaven? It takes a VST rating of 1.35 or better. This means that any ETF with an RT of 1.76 or higher will show up among the highest ranked VST stocks. As far as I can tell, the first time a Contra ETF had a VST above 1.35 was on August 15, 2007, when SRS, ProShrsUlShRE showed up in Stock Viewer as the eighth highest stock ranked by VST. Had you bought SRS that day and held it to yesterday's close, you'd be up 14.35% vs. a 34.45% drop in the Price of the VectorVest Composite. But there are many, many ways to do much better than that with Contra ETFs. See, for example, our August 3, 2007 "Strategy of the Week," "How to Make Money with UltraShort ETFs," or see our November 2, 2007 "Strategy of the Week," "How to Make Money with Contra ETFs."

I've received feedback that some of our subscribers are upset that some high VST Contra ETFs have 'B' ratings and have been distorting the accuracy of the Buy/Sell Ratio, BSR. On a day such as October 27, 2008, for example, when the Price of the VectorVest Composite closed at a five-year low of $17.13, 99 stocks were rated a 'B' and the BSR was reported to equal 0.01. No, no, no they said, 57 of those stocks were Contra ETFs and they shouldn't count. The "true" BSR should have been reported as 0.005. Now I have to ask you, does a BSR of 0.005 give you any more information than a BSR of 0.01? Both readings indicate a brutally oversold market.

I must admit, however, that there is something I don't like about these guys showing up as high VST stocks. It's that high VST stocks typically have excellent financial track records and go up in Price over the long-term. Contra ETFs do not have the engine of earnings growth to drive their Prices higher and higher over time. In fact, they will be heading back to Hades as soon as the market begins to move higher. That will be a good thing because we would no longer have any Strangers in Paradise.

Last Friday I said that the Buy/Sell Ratio, BSR, in our Market Timing System finally fell below 0.20 so I would normally start thinking about a bottom. But my bones were telling me it's better to sit and watch right now. So what happened?

On Monday, the big Wall Street banks and brokerage houses cranked up their hype machines and began telling us that everything is A-OK, subprime problems were under control, the credit crunch wasn't that bad, liquidity was still plentiful and that now was a good time to buy stocks, especially financial, housing and mortgage stocks. Their prices took off like birds. I couldn't believe it. Why would anybody want to buy these stocks? Were there that many shorts covering their positions? Or were the banks and the brokers buying stocks just to pump up prices. Market breadth was not good on Monday and this told me it was a phony rally.

So the snow job continued and actually got bolder through Tuesday. Stock prices closed higher once again. On Wednesday, a great earnings report and the charm of Mr. John Chambers, Chairman, President and CEO of Cisco Systems worked its magic. (See my essay of May 10, 2002). Stock prices soared and the Primary Wave of our Market Timing System gave an Up signal. We were looking to buy if the rally continued.

On Thursday, however, a little guy with thick glasses and wearing a green eye-shade deep in the bowels of the largest bank in France said, "sacre bleu," this can't go on. BNP Paribas halted withdrawals from three of its subprime-related funds because the funds couldn't be properly valued. They said it was because of the "complete evaporation" of liquidity in some parts of the market. Stock prices got hammered.

So what happened to all the reassuring words we heard? Just remember that the snow job we got last week came from the same people who told us to buy stocks all the way down in the bear market of 2000-2002. Sure I like to buy stocks when they are cheap, but I try to never, ever buy them on the way down. That's why I waited for the Primary Wave to give an Up signal before even thinking about going long. And I may even wait for a Confirmed Up signal before jumping back into this market. So here we are watching the slam, bang, bone crushing sell-off we were looking for. What do we do now?

How about doing some window shopping? And I said window shopping, not buying. Wouldn't it be nice to find some good stocks we wish we had already owned. The easiest way to find these stocks is to simply sort Stock Viewer by RS. These stocks are some of the best to own for the long-term. As of last night, the highest ranked stock by RS was Stryker Corp., SYK. Look at the EPS pattern on an All Weekly graph. It doesn't get any better than that folks. I've written about shopping for high RS stocks before, so see my essays of August 4, 2006, October 14, 2005 and May 13, 2005.

If you're looking for more excitement, simply read the Views every night. We'll list some good strategies for you when we decide to go long in our Model Portfolio. To see how well these strategies have performed in the past, visit the VectorVest University. It's a great way to see what's going on in the market. And this week Mr. Bill Shelton will be giving a great presentation on Window Shopping For Bargains.

ARE YOU KIDDING ME?
Take a look at a five year graph of Westwood One, WON. Note that it closed at $39.06 per share on 01/10/03 and is at $3.40 on 08/09/07. Over this time, EPS has deteriorated from $1.15 per share to $0.24. GRT has gone from 25% per year to -5%. VectorVest currently values this stock at $2.37 per share and it has an "S" rating.

Yesterday I got an email from a newsletter I subscribe to. It said that, "Westwood One reported second quarter earnings and made 8 cents per share. It generated $15.8 million in free cash flow, versus $20.4 in the same period last year." Not ideal, but hardly Armageddon. Nevertheless, the market is hammering the stock and it's down about 60% from its reference price. So the editor quotes Peter Lynch who allegedly said, "I've bought stocks at $10 that went to $2 and then to $30. You just can't predict the bottom or the top."

Then the editor says, "Think about that. One of the greatest investors of all time doesn't think an 80% drop in share price is a big deal. It's a normal part of investing in individual stocks. We buy, sell, and hold based on evidence, not market-based ghosts and goblins. A volatile stock price isn't sufficient evidence to cause us to exit a potentially profitable and apparently undervalued stock. My advice is to HOLD Westwood One. Don't buy more. But if you haven't bought the stock yet, this is an ideal time to consider a new position."

The newsletter is touted as recommending "Safe Stocks Under $10 a Share." Are You Kidding Me?

CONTRA ETF WATCHLIST.
For your convenience, a new WatchList called "Contra ETFs" has been installed in the ETFs folder.