Last week I warned about listening to the geniuses on CNBC who say, "Buy, buy, buy," no matter what the market's doing. Well, they were at it again this morning, big time. They had a runner at the bottom of the screen with the traditional, "Time to Buy Stocks?," question for guys like me who usually have the Mute button on. Nevertheless, I turned it off and listened to the conversation. Two pretty good money managers, Mr. Mark Prado and Mr. John Dorfman, both said now was a good time to buy stocks. Surprise. Surprise.

CNBC then quoted Mr. Warren Buffett who had published an Op-Ed piece in the New York Times today, saying, "Buy Stocks. Cash is Trash." His optimism is based upon the credo to be fearful when others are greedy and greedy when others are fearful. He also said that cash is a terrible long-term asset...it pays virtually nothing and is certain to depreciate in value. Wisely, Mr. Buffett made no claims regarding what the market would do today, tomorrow or three years from now. He's just buying value for the long-term. Smart guy he is, indeed.

Finally CNBC brought in Mr. Sam Stovall, a veteran investor. He said this tough market reminds him of the late sixties, but he is buying stocks now. Mr. Stovall didn't elaborate, but the market was pretty hot in the mid-sixties and the Mighty Dow went above 1,000 for the first time. Inflation and interest rates went up in the late sixties and stock prices, of course, moved lower. Although it wasn't a happy time for investors, the market got worse in the seventies.

The Arab oil embargo of October 1973 triggered skyrocketing inflation and interest rates, causing a recession, and the stock market crashed. The Mighty Dow was crushed and it wasn't until August 1982 that it got above 1,000 and stayed there. Can a long, drawn-out dry-spell like that happen again?

You bet it can. The Arab oil embargo was a life changing event and its affects are still being felt to this very day. The current credit crisis is another such event and is also changing the way we live. The Arab oil embargo was not good for America and so far the credit crisis hasn't been either. So how can one imagine that now is a good time to buy stocks?

Last Friday, the Price of the VectorVest Composite closed at $18.59 per share, its lowest level since August 28, 2003. Buying stocks at a five-year low is not a bad time to go bargain hunting. Apparently a lot of investors thought so and the Price of the V V C soared a phenomenal $1.85 per share on Monday. It dipped a little on Tuesday and crashed to a lower low of $18.58 on Wednesday. Yesterday, Thursday, it opened to the downside and moved to an intraday low of $18.01. Then the big boys came back from lunch and stock prices took off. It was a beautiful reversal day and the Price of the V V C closed at its high of $19.23 per share. Last Friday's bottom was tested successfully, our ProTrader graph showed that a perfect Hammer formation had been formed, and the Primary Wave was Up.

As for today, the market opened to the downside, rallied well into positive territory; then pulled back, ending slightly in the red. So the Price of the V V C is up for the week and I believe it's Time to Buy.

FOR BARGAIN HUNTERS ONLY.
You can use either the search function in these Views or go to our blog at www.vectorvest.com to see what I have written on the subject of bargain hunting. Now's the time to do some homework.

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.

Last week I said to "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."

I also said there's more here than meets the eye and went on to introduce our trend indicators, the Primary Wave and Market Timing Indicator. To make things simple, I also said that it's always OK to buy stocks when the Primary Wave is Up. Having said all that, I thought I would take the Color Guard out for a test drive.

I wanted to see what would happen if I bought stocks when the Primary Wave was Up and deferred purchases when it was Dn. So I created a 10-stock portfolio as of five years ago, 09/19/03, and managed it week-to-week, selling on an "S" Rec. I stayed long 100% of the time and replaced empty positions only when the Primary Wave was Up. The exercise was very instructional.

At the end of the first year, I had a gain of 22.91%, and a gain of 71.17% after two years. Not bad, I thought, but then my portfolio peaked on May 12, 2006, up 123.51%, and got mauled during the summer of '06. It fell to a gain of 61.67% by September 22, 2006, the three year mark. It fought back to a gain of 99.67% on December 08, 2006; then it went down again. Nevertheless, it recovered once again to a gain of 76.47% by September 21, 2007, the fourth year. It peaked at 99.35% on October 26, 2007 and went downhill after that. As of yesterday, September 18, 2008, it had a gain of 22.55%.

You might say that performance is not very good and I certainly would agree with you. It's not very good at all. But you should remember that I didn't take full advantage of all the information the Color Guard provides and the portfolio still survived 10 months of a terrible bear market. So what other information in the Color Guard could I have used?

Perhaps the most important signals it gives: The Confirmed Up and Confirmed Dn signals. These signals are presented in the Trends column as C/Up and C/Dn. These signals should not be ignored. While there's a lot of flexibility as to when you may buy stocks, you're playing with fire if you buy them when the market is falling. Again, you cannot ignore a C/Dn signal. Had I heeded the C/Dn of November 1, 2007 and gone into cash on November 2, 2007, I would be sitting here with a gain of over 99%. Had I gone into cash on November 2, 2007 and gone long during the following C/Up to C/Dn period of April 3, 2008 to June 11, 2008, I'd have a gain of 135.53%. Now that's not bad, but we can still do a lot better.

Simply buying on Primary Wave Up signals and not buying on Dn signals is a good beginning and using the C/Up and C/Dn signals is a must, but there's much more than that, which I will present in the next few weeks, to fully explain Implementing the Color Guard.

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.