Last week I wrote about a five year back-test I ran on a 10 stock portfolio in which I purchased stocks on Primary Wave Up signals and sold them on 'S' Rec's. This portfolio was long 100% of the time. Although it produced a profit, it revealed a number of problems that had to be solved.

First of all, I saw the portfolio go up time and time again in up markets and go down time and time again in down markets. Well, I already knew that was going to happen, so the solution to this problem was simple: Buy long upon C/Up signals and go into cash on C/Dn signals.

The second problem I saw was that selling on an 'S' Rec allows stocks to go up very nicely, but it also allows them to go down quite a bit before getting an 'S' rating. Somehow, I had to find an exit strategy that captured more of the gains. The third problem was that the portfolio typically peaked at the top of each up trend; then fell sharply just before the C/Dn signal appeared. So I had to find a way of reducing my exposure, i.e., raise cash, as the market trended higher.

I knew it was going to take a lot of work to find the answers to these problems, so I enlisted the aid of two Simulator Wizards: Steve Chappell and Angel Clark. As it turned out, Angel had been working on these problems for some time and had made considerable progress in solving them. So when it came time to find the best exit strategy, she knew exactly what to do. She found that using a G/L% of 50% gain and 30% loss gave the best results. This finding is consistent with work I and others had done.

Angel also knew how to reduce risk as the market went higher. She bought 10 stocks at the beginning of a campaign, but did not replace any of them as they were sold. In this fashion, she typically was underinvested at the end of each up trend. She also bought and sold positions at the Next Day's Open. In this fashion, she could place her orders at night and didn't have to be concerned with the market during the day.

So Angel took several techniques we have demonstrated for several years and combined them into a new, powerful, easy to use strategy. With this strategy, you buy the top 10 VST-Vector stocks at a C/Up signal; sell them upon hitting a 50% gain or 30% loss at the Next Day's Open; then go into cash at a C/Dn signal. What could be easier than that? It's called Easy Does It - C/Up.

I have received some feedback recently that the Color Guard is confusing and hard to understand, so this essay is dedicated to explaining, as well as I can, how it works.

Think of the Color Guard as you would a traffic light. Green means go, it's OK to buy stocks. Yellow means caution, it may or may not be OK to buy stocks. Red means stop, don't buy any stocks.

Can it really be that simple? In a perfect world, the answer would be yes, but there's more here than meets the eye. For example, I'm not going to go through a green traffic light if I see a truck in my path, running a red light. Even though I have the green, I always look both ways to make sure it's safe to proceed. This is why our trend indicators, the Primary Wave and the Market Timing Indicator, are important parts of the Color Guard.

We use colors to report the up and down movements of the Price of the VectorVest Composite, the Relative Timing of the V V C and the Buy to Sell Ratio, and we use Up and Dn signals to report the direction of our Trend Indicators. Put it all together and we have a set of three lights and two indicators. Here's a summary of the most likely combinations of light colors and trends, what they mean and the suggested action to take:

LIGHTS......	TRENDS ..............	MEANING................	ACTION
3 Green.....	UpUp	The Color Guard is Bullish.........	Buy...
2 Green.....	UpUp	The Color Guard is Somewhat Bullish	Buy...
1 Green.....	UpUp	The Color Guard is Mildly Bullish..	Buy...
1 Green.....	UpDn	The Color Guard is Mildly Bullish..	Buy w Caution.
3 Yellow....	UpUp	The Color Guard is Neutral.........	Buy w Caution.
3 Yellow....	UpDn	The Color Guard is Neutral.........	Buy w Caution.
3 Yellow....	DnUp	The Color Guard is Neutral.........	Do Not Buy.
3 Yellow....	DnDn	The Color Guard is Neutral.........	Do Not Buy.
1 Red.......	DnUp	The Color Guard is Mildly Bearish..	Do Not Buy.
1 Red.......	DnDn	The Color Guard is Mildly Bearish..	Do Not Buy.
2 Red.......	DnDn	The Color Guard is Somewhat Bearish	Do Not Buy.
3 Red.......	DnDn	The Color Guard is Bearish.........	Do Not Buy.

Given this array of light combinations, trends, meanings and actions, I can see why some people may be confused by the Color Guard. But here's how to make it real simple: IT'S ALWAYS OK TO BUY STOCKS WHEN THE PRIMARY WAVE IS UP.

The Primary Wave, shown on the left side of the Trends column, is discussed at some length in my essay of July 9, 2004. The Underlying Trend, shown on the right side of the Trend column, is discussed in my essay of July 23, 2004. A comprehensive review of our Market Timing System was presented in a series of seven essays from July 9, 2004 to August 20, 2004.

While it may confuse some people, one of the best times to buy stocks can be when we have 3 Yellow lights and an UpDn situation. But you have to look both ways before you act. You have to see whether prices are rallying in a falling market or whether they are taking off from a bottom. Of course we prefer to buy stocks at the lowest prices, so we use the Market Timing Graph to see what is going on. We give you the results of our analysis in our Strategy commentaries.

As I write this essay, 3:00PM ET, VectorVest RealTime is showing 3 Yellow lights, a DnDn situation and the Price of the V V C is at $25.57 per share. If the Price of the V V C goes up more than one cent, it will be higher than last Friday's close of $25.58 per share and the Primary Wave will be Up. Therefore, the table shown above would say it's OK to buy stocks, but caution is advised. So what would we do?

The first thing we would do is close out of the ETF Contra Fund positions in the Model Portfolio. We'd then be in cash. The next thing we'd do is get a shopping list ready to go long on Monday if the rally continues. We always want to go with the flow. So the Price of the V V C would not only have to be going up next Monday, but it would have to go above last Monday's close of $25.86 per share for the Primary Wave to remain in an Up mode. It's important to realize that just because the Primary Wave may be Up on any given day, it doesn't mean the market will go up the next day. We think it would, but we always have to look out for that truck running a red light.

We believe that market direction is the single most important thing you need to know to consistently make money in the stock market. So consulting the Color Guard is the place to start before you do anything with your portfolio. That's why we feature it prominently on our homepage and present it vividly for instant interpretation. Hopefully, it will serve you better now that we have The Color Guard: Clarified.

It may have been a coincidence, but two weeks ago I wrote an essay called, "Making a Quick Killing," and last week I wrote about two VectorVest users, Mr. David Price and Dr. Sarosh Quereshy, who did very well, indeed, in the recent CNBC Million Dollar Portfolio Challenge. Both gentlemen got off to a good start; then made huge profits during the last week of trading. That was no coincidence.

Actually, both gentlemen were in sync with VectorVest's guidance, and both managed their portfolios in a similar fashion. They started out very well by using the "Stalwarts" strategy, faltered a bit; then made huge killings when the market exploded off of the July 15th bottom. David made $1,000,000 in the last two days of trading and Sarosh gained 38% in the last week. They did exactly what I hope you will do: they learned how to use our guidance and act on their own. What do I mean by that?

I firmly believe that market direction is the single most important thing you need to know in order to consistently make money in the stock market. You must let the trend be your friend. So we work very diligently on indentifying the market's trend. We want you to buy long in an up market and go into cash and/or sell short in a down market. Therefore, market direction is the headline story on our Home Page. The Market Barometer and the Color Guard at the top of the home page give immediate, visual representations of what the market is doing. Read them like you would a traffic light. Green is go, (up), yellow is caution, (transition), and red is stop, (down). That's the easy part.

The hard part comes in knowing what to do with this information. Since different investors respond differently to the same information, we provide guidance to three types of investors: Prudent, Aggressive/Traders and those who are "Riding-the-Wave." Implicit in this guidance is the belief that the market will follow a path suggested by our indicators. For example, if we have three red lights and a DnDn situation like we had after yesterday's close, our guidance will be to play the market to the downside. This is all well and good, but you cannot commit your trades until you see what the market is actually doing at the time you trade. YOU MUST GO WITH THE FLOW.

Last night we said we "will go short tomorrow with one of the following strategies if the market moves to the downside." Well, the futures were pointing up this morning and the DJIA is up about 200 points as I write this essay. Consequently, we haven't gone short yet today and it doesn't look like we will. This should not surprise you. Please read my essays of 12/23/05 and 11/24/06. They explain in detail how we manage the Model Portfolio. Memorize what these essays say, and you will be on your way to doing what Dave and Sarosh did: use our guidance, act on your own and Become One of the Best.

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.