I received an email this week chastising me for laughing at the morons on CNBC. I apologize for saying that...but only because I should have been crying. It really saddens me to see how CNBC's "Wall Street" approach to investing has hurt their viewers in this bear market. But CNBC is not alone in this regard, the conventional wisdom teaches us bad practices.

I began investing in stocks about fifty years ago and I've probably made every mistake in the book. My worst mistake was selling all my stocks in December 1974, at the very bottom of the '73-'74 bear market. I was very discouraged because I hadn't made a dime after 15 years of buying and selling stocks. I won't call it investing, but I wasn't a Trader either. Nevertheless, I was so dumb I was lucky I didn't lose my shirt. Yes, I had a broker from Merrill Lynch. Yes, I belonged to an NAIC stock club. Yes, I read books on investing, including Benjamin Graham's Intelligent Investor. Yes, I read Barron's and Forbes and the Wall Street Journal. Yes, I used Value Line. But it didn't do any good because my techniques were bad and I couldn't tell the difference between a Bull market and a Bear market.

For example, my ex-broker always called me when he saw a stock going down in price. He was the expert, so I usually bought it. You know what? It usually kept going down and I was stuck with it. One of my pet peeves with CNBC is that even on the worst down days, they ask, "Is this a buying opportunity? What are you buying now?" It appalls me to see Cramer go into his act, saying, "'Mon back, mon back," urging his listeners to buy, buy, buy on a pullback. Boo-yah, baby...until the falling knife goes through your heart. The bottom line: Never buy stocks on the way down.

Another pet peeve of mine is this business of buy and hold. On June 28, 2008, an article written by Mr. Larry Light appeared in the Wall Street Journal. It was entitled, "What to Do to Survive This Market." It said, "There's a decent argument to be made for buy and hold. Aside from the absurdity of liquidating an entire equity portfolio - the tax headaches would be epic - investors ultimately end up better off than if they had tried to sell at the top and buy at the bottom." Really? I think I'm going to call this guy and introduce him to the "Yellow Brick Road."

Your top priority right now must be to preserve capital. If you haven't already sold your stocks and gone into cash by this time, I don't think you should do it now. But you should learn how to protect your portfolio. Please see my June 29, 2007 essay on Portfolio Protection. Learn how to use Option Collars. If you do, you'll have the money to buy stocks when this bear market ends, producing bargain prices. This is the silver lining. So survive now and be ready to look for The Silver Lining.

PLANNING YOUR RE-ENTRY.
We were hoping to go long two weeks ago, on Friday September 26th, when stock prices went down instead of up. They got crushed the following Monday and havoc has reigned supreme ever since. So why didn't we go short and make a lot of money? Simply because the Buy/Sell Ratio, BSR, closed at 0.09 on Monday, September 29th, and our experience has shown that it's not a good idea to go short when the BSR is below 0.20. In fact, it's the time to think about going long and that's what we've been doing. But we're not going long until we see solid signs of a sustainable recovery. First I want to see an explosive rebound. Then I want to see a good follow-up day. Finally I want to see the Primary Wave flash an Up signal.

If you had any doubts about the efficacy of VectorVest's Market Timing System, they should have been dispelled over the past year. Our work could hardly have been any better.

One year ago, July 20, 2007 to be exact, I wrote a brief commentary called, "Beware the July High." It noted that "the Price of the V V C had corrected sharply in eight of the past eleven Julys and is down 1.30% from its July 13th high." In the Strategy section of these Views, we advised Prudent Investors not to buy stocks. We advised Aggressive Investors to play the market to the downside, and we were in cash in the Model Portfolio. Moreover, our "Strategy of the Week" was that of "Protecting Profits."

Sure enough, the Price of the V V C crashed 61 cents per share two days later, July 24th, and we got a Confirmed Down signal on July 26th. A month later, a gentleman I had never met got up from his dinner table while I was at the Cleveland Airport Marriott Hotel to give my fantastic presentation on "How to Master the Market," and thanked me for all the money I had saved him and his brother who was also a VectorVest user. He said the July 20th call was all they needed to lock in their profits.

Well, that wasn't the only great call we made last year. I am particularly proud of my October 19, 2007 essay called "The Canary's Warning," in which I explained how a special signal from the Buy/Sell Ratio "marked the beginning of the downward journey for the market." Of course, we then got the "shocking" C/Dn signal on November 1, 2007 that no one would believe. Fortunately, on the very next day, November 2, 2007, I wrote about how you could make money in a down market by buying Contra ETFs. Our Strategy of the Week was, "How to Make Money Using CONTRA ETFs."

Once again, this strategy made huge profits for our subscribers when they followed our lead of using it to play the downturn of June 6, 2008 to July 14, 2008. At present, I am especially pleased with the guidance we gave you over the past week regarding the expectation of this week's explosive rally. It was about as close as we're ever going to get to Perfect Timing.

P.S. Don't assume the current rally means the Bear Market has ended, because it hasn't. Please see the Investment Climate section shown below. We're in a Case 5, Bear Market Scenario. Inflation rates are soaring, interest rates are still way too low and Ben Bernanke can't do a darn thing about it. Finally, and most importantly, earnings are still trending lower. The Bear Market will not end until this indicator goes above 1.00 and that's going to be a while yet.

In Wednesday's Strategy section, we said "While the MTI and RT matched their August 16th lows, the BSR still has not done so by closing at 0.15 versus 0.10 on August 16th and the Price of the VVC has also not matched the August 16th low. Therefore, there still may be some room to move to the downside, but the market is terribly oversold, making an explosive rebound possible. Bottom line, it's too late to sell short." What does all this mean?

First of all, the Price of the VectorVest Composite, VVC, is the primary indicator we use to track the market's movements. When the Price of the VVC goes up, the average Price of over 8,300 stocks in our database has gone up; when it goes down, it's safe to conclude that the market has gone down. A graph depicting the daily closing Prices of the VectorVest Composite may be obtained by clicking on the header labeled, "Market Timing Indicator" shown on the Home Page. This graph, called "Market Timing Graph," also shows a 40-Day, simple moving average of Price in the upper section and the Market Timing Indicator, MTI, in the lower portion.

The Market Timing Graph clearly shows that the Price of the VVC peaked most recently on 10/12/07. Note that on that day the MTI peaked at a level of 1.63. If one sets the dateline on the graph to 10/10/07, they would see that the MTI hit 1.63 even though the Price of the VVC was lower than it was on 10/12/07. In other words the MTI did not confirm the up move of the Price of the VVC from 10/10/07 to 10/12/07. This divergence gave an early warning signal that there was trouble ahead. The 5-Year Daily Market Timing Graph shows that the MTI also gives an early signal that the market is nearing a bottom of a downturn when it hits or goes below 0.60. This is exactly what happened on Wednesday, 11/21/07, when the MTI hit a remarkable low of 0.52.

Now let's replace the MTI on the graph with RT. Note that in the most recent upturn RT peaked on 10/05/07, five trading days before the Price peaked on 10/12/07. This behavior is not unusual. In the prior rally, which went from 03/05/07 to 07/13/07, RT peaked 29 days before the Price of the VVC peaked. This divergence marked the end of the "blast-off" phase of that rally. In regard to downturns, the 5-Year Market Timing Graph shows that the market is nearing the end of a downturn when RT nears or goes below 0.83. It hit 0.81 last Wednesday.

The Buy/Sell Ratio, BSR, is by far the most revealing of the four indicators. The 1-Year Daily graph shows that the BSR peaked on 10/09/07, three trading days before the Price of the VVC peaked, but two days after RT peaked. It is interesting to note that both MTI and RT reached their former peaks of 10/12/07, the day the Price of VVC peaked, but the BSR never did. It moved up a bit, but stayed well below its 10/09/07 peak. So it clearly marked the end of the "blast-off" phase of the 08/16/07 to 10/12/07 rally. The BSR also gave an early warning of trouble ahead as described in my essay of 10/19/07, called "The Canary's Warning." The All-Daily display of the Market Timing Graph shows that the BSR does an excellent job of signaling the bottoms of downturns. In particular, it is time to stop selling short and to begin getting your shopping list ready when the BSR goes below 0.20. Yes, the market can go lower after this event, but you would be playing with fire to continue shorting stocks.

In the current downturn, the MTI led the way down. It hit 0.60 on 11/16/07. The BSR hit 0.19 on 11/19/07 and the RT finally hit 0.81 on 11/21/07. The fact that the MTI and RT matched or went below their August 16th lows last Wednesday while the BSR did not, is fascinating to me. It suggests the possibility that, perhaps, the massive sell-offs are subsiding and stock prices are consolidating for a nice rally. We will get more evidence of this if stock prices go lower but the BSR refuses to go below the 0.15 level hit last Wednesday.

Now I know all of this may sound very complicated to some of you, but just relax. The Color Guard will tell us in the blink of an eye that the downturn has lost its energy when the first green light appears after all those red and yellows. Then it's time to cover your short positions and start going long. Moreover, Mr. John Campbell will walk us through a fascinating interpretation of the Market Timing Graph in this week's "Strategy of the Week" presentation. So visit the VectorVest University at www.vectorvest.com and watch John's presentation on "Calling a Bottom (Updated)."

Let's mark Thursday, August 16th, as the probable bottom of this downturn. The Price of the VectorVest Composite closed at $28.09, five cents lower than its previous close, but 70 cents higher than its intraday low of $27.39. A big price reversal such as this is a very good sign that buyers were jumping back into the market.

On many occasions, I have said that a Buy/Sell Ratio, BSR, below 0.20 indicates an oversold market condition and a time when investors should sense that a bottom is near. This event first happened on Friday, August 3rd, but it didn't feel right to me, so we stayed out of the market. Sure enough, the market rallied the next three days; then plunged yesterday to its capitulation low of $27.39. At this point, the BSR hit an intraday low of 0.05; then rallied back to close at 0.10, up 0.02 from Wednesday's close of 0.08. When the BSR closes up from a previous day while the Price of the V V C closes down, a bullish divergence is produced which signals that price momentum has swung to the upside.

Another sign that we've probably seen the bottom is that the Price of the V V C closed on Thursday only eight cents higher than it did on March 5th, the low point of the previous downturn. Had the Price of the V V C closed below this level, $28.01, we would have had to go way back to July 2006 for the next support level, which is $24.82. Whew, that would have been painful for those who stayed long all the time.

The best evidence that we have probably seen the bottom is that the Fed lowered the Discount Rate by 50 basis points to 5.75%. While this is not as strong a signal as lowering the Federal Funds rate, which is at 5.25%, it says that the Fed is aware of what is going on and will step in with a rate cut when needed.

Just for the record, the Discount Rate is the interest rate charged to commercial banks and other depository institutions on loans received from the Fed. The cut in the Discount Rate was aimed to strengthen the financial system. The Federal Funds rate is the interest rate at which private institutions lend to other depository institutions overnight. A cut in this rate would be aimed at strengthening the economy. Dr. Bernanke, Head of the Fed, hasn't admitted yet that the economy needs help, but it's expected that he will in the September FOMC meeting. In any event, there's hardly a better reason for the market to move higher than a Fed rate cut.

Why did we stay in cash when the market was getting killed earlier this week? The answer has two parts: 1. No one knows how low prices may go and, 2. You never know when the Fed is going to step in and drive the market sharply higher such as it did this morning. Yeah, you're missing the fun of shorting stocks as stock prices moved lower, but you've got a real problem when the market explodes. If you're in cash, you can join the party anytime you wish to.

Assuming you're in cash, what do you do now? If you're an Aggressive Investor or Trader, you should have bought stocks today. If you're a Prudent Investor, you should be getting your shopping list ready. If you're Riding-the-Wave, as we do in the Model Portfolio, you should be checking strategies with which to go long. We are going to go long the day after we get an Up signal from the Primary Wave provided the market is moving higher. I expect this to happen next Tuesday or thereabout. Just stay tuned to these Views, because we're Looking To Go Long.

EASY DOES IT.
If I had a crystal ball, I would tell you exactly which strategy to use when you get back into the market. But I can't see into the future, so we work real hard to see what has worked in the past and hope it works one more time. Fortunately, Ms. Angel Clark has done all the hard work and she has prepared a brilliant presentation on how to reap big profits by buying stocks at the beginning of Confirmed Up signals. Visit the VectorVest University to see this week's "Strategy of the Week," called "Easy Does It."

VECTORVEST REALTIME.
In case you're wondering how I got intraday information on the Price of the V V C and the BSR, I got it from VectorVest RealTime, a new product currently under development. While I don't know for sure when it will be released, I can tell you that it will be different from and better than anything else you have ever seen. It's going to be a sensational product. VectorVest RealTime.