VectorVest teaches that one of the cardinal rules of investing is to never buy stocks going down in price. The corollary to this rule is, of course, to only buy stocks which are rising in price. Indeed, this rule seems illogical and is totally contrary to what most of us have been taught to do.

All of us are looking for bargains, so it's natural to believe the brokers, Wall Street Wizards and so-called experts on CNBC when they exhort us to buy stocks which are falling in price. Surely, Apple Inc. is a much better buy at $130 a share than is was at $200. Yes, of course it is, but only if it is going up in price. Only if it's going up in price? How do we know that? The simplest way is to check RT. If it is above 1.00, the stock's price is in an uptrend. As of last night, Apple's RT was 0.56. That tells me Apple's price is getting crushed. So I'm not touching this stock.

But wait just a minute. I really love this stock, and Cramer loves it too. He said to buy, buy, buy it clear through to the end of the year. So, phooey on your stupid RT. I'm going to look at a graph and see what's really going on. The Standard graph shows me that Apple closed at $199.83/share on 12/28/07, broke below its 40-day MA on 01/04/08, got an 'S' rating at $159.64 and hit a low of $119.15 on 02/26/08. Since then, it's been working higher. Has it bottomed? Is it on its way back up?

Apple has tested and bounced off of the $120 level, which is just above the low it hit last August, three times. So it appears to have a lot of support at $120. The RT hit a low of 0.38 on 02/07/08 and has been hitting higher lows since then and Apple's price crossed back above the 40-day MA on Tuesday and went above its Stop-Price on Wednesday. Very good!

Now let's see how it looks on a ProTrader Graph. I like to use a 3-Month, Daily graph with Prices shown as Candlesticks, a 30-Day Weighted MA, 9,12,26 MACD and 20-period Detrended Price Oscillator, DPO. Sure enough, Price has crossed above the 30-day Weighted-MA, the MACD is signaling an uptrend and the DPO crossed above 1.00 on 03/13/08. So it sure looks like Apple has consolidated and is moving higher. But wait. RT is still well below 1.00 and that bothers me. Isn't it awful risky to buy a stock with a low RT? Yes, it is, but that's how aggressive investors make (or lose) their fortunes.

Take Mr. Joe Lewis, the currency speculator, for example. He bought a billion dollars worth of Bear Stearns, BSC, right after the sub-prime debacle last August. I heard he bought in at an average price of $130/share. Yup, that must have sounded great since BSC peaked at $170 in January '07. But he made one fatal mistake. He bought the stock on the way down. Stupid old RT was way below 1.00 and the stock had an 'S' rating when he did that. So, Mr. Joe Lewis broke the cardinal rule and bought BSC, big-time, on the way down. When the BSC Board agreed to sell the company last Sunday to J.P. Morgan for $2.00 per share, Mr. Joe Lewis, a.k.a. the boxer, was KO'D.

P.S. On March 11, 2008, Mr. Jim Cramer told his viewers that it would be silly, just plain silly to sell their Bear Stearns stock. BSC closed that day at $62.97 with a 0.48 RT and an 'S' rating. I don't know if Mr. Lewis was watching the show, but it doesn't appear that he was using VectorVest either.

The wick is lit and time is ticking away. Mr. Jim Chanos, a noted short-seller who blew the whistle on Enron, Tyco and other companies ready to implode, says the UK housing market is where the U.S. was 18 months ago. He may be too optimistic.

The Wednesday, November 28th, Daily Mail says that 10 million Britons are falling into a black hole of debt. Debt-laden Brits owe some 1.3 billion pounds to banks and finance companies and 53% spend more than half of their take home pay in debt payments. 5.4 million Brits, 12%, have missed payments on debts and bills in the last 12 months. Three percent fear they are about to lose their homes. Five interest rate hikes since August 2006 have added more than 100 million pounds per month to repayments on the majority of mortgages.

In terms of population, the housing bubble in the U.S. is small at one fifth of the size of The Housing Bubble: British Style.

THE ENHANCED PROTRADER MARKET TIMING SETUP.
In last week's essay, I used the Standard Market Timing Graph to illustrate how it could be used to call a market bottom. That was a great call, but it wasn't the only way to skin a bear. That's why I also use an enhanced version of the ProTrader Market Timing Graph.

The ProTrader Market Timing Graph allows one to study market timing from another perspective, and many of our subscribers say it is better than the Standard Market Timing Graph. I'm not sure I agree with that, but I know that I have made it better than the one described in my essay of August 20, 2004. I simply added the 9, 12, 26 MACD to the default ProTrader Market Timing Graph.

This indicator allows me to get a better feel for market momentum. It's like watching the BSR with the Standard Graph. For example, MACD crossovers on a 6-month, daily ProTrader graph clearly showed a momentum swing from Up to Dn on July 23rd, the first trading day after I wrote the snippet, "Beware the July High." You will also see other critical crossovers on August 21st from Dn to Up, October 16th from Up to Dn and now, November 29th from Dn to Up.

To see the ProTrader Market Timing Graph, simply access the Standard Market Timing Graph; then click on ProTrader Graph. If you do not have ProTrader on your computer, you may visit our website to sign up for a Free 2-week Trial. While it's not absolutely necessary to have ProTrader, I love The Enhanced ProTrader Market Timing Setup.

Moving average (MA) crossovers are the oldest, simplest and most commonly used searches to identify a stock's price trend. An up signal is given when the short-term price MA crosses above the long-term price MA. A down signal is given when the short-term price MA crosses below the long-term price MA. Up signals generated by MA crossovers are ideally suited for bottom fishing purposes and may be used by all types of investors.

Conservative and Prudent Investors favor MA crossovers with longer look-back periods because these signals are more reliable. Aggressive Investors and Traders prefer MA crossovers with shorter look-back periods because they are faster. Other than indicating a stock's price history and its trend, MA crossovers say nothing about a stock. Therefore, no one should ever buy a stock just because it got an up signal from an MA crossover. Moreover, it is wise, if not necessary, to use MA crossover searches in conjunction with other information sources. This is where VectorVest comes in. VectorVest ProGraphics analyzes, sorts and ranks over 8,000 stocks every day by a variety of indicators and parameters, and VectorVest ProTrader, our technical analysis software, allows investors to customize and search for MA crossovers to their specifications. Together, VectorVest ProGraphics and VectorVest ProTrader provide everything an investor needs to go bottom fishing using MA crossovers.

This week's "Strategy of the Week" illustrates the use of a 10x30 Day MA Crossover search. Note that the search specifies finding stocks with Price >= $1.00, AvgVol >= 100,000 shares per day with Rec <> "S". It also specifies that both MAs are moving up when the crossover is made. (This requirement is OK for shorter term MAs but not suggested when one is using a look-back period greater than 50 days.) Finally, a somewhat exotic sort, VST*CI/ActualPrice, is used to find candidates which are likely to explode in price.

While MA crossovers are easy to use, one should recognize that they are date specific. In other words, the search cited above will find only those crossovers occurring on the date of the search. You should also be aware that a 10x30 Day MA crossover search will not give the same results as a 2x6 Week MA crossover search because the moving averages are actually different. For example, I ran the 10x30 Day search on August 20, 2004 and found 91 stocks. The 2x6 Week version of the same search found 375 stocks. The reason for this difference is that the former search uses 10 and 30 daily data points and the latter search uses 2 and 6 Friday data points. Incidentally, I got better testing results with the daily search.

Before leaving this subject, it's worth noting that MA crossovers play an important role in the VectorVest system. VectorVest Stop-Prices are driven from 13-week moving averages. If one thinks of Price as a one-day MA, we then say that any stock whose Price crosses above the Stop-Price gets a "H" or "B" rating. When Price crosses below Stop-Price, the stock gets an "S" rating. When we specified that the above cited search find stocks with Rec <> "S," we put the Price, Stop-Price MA crossover to work.

A ramification of this relationship was used in my essay on "Bottom Fishing Using Recommendation Sequences," written on May 20, 2005. In those searches we looked for stocks whose recommendation sequences went from "S" to "B" in a variety of sequences. In all cases, however, we were looking for stocks whose Prices had crossed from below to above Stop-Price. It was just another way to go Bottom Fishing Using MA Crossovers.

P.S. If you do not have VectorVest ProTrader, please call 1-888-658-7638 to get a FREE 30-Day Trial.

One of the most frequently asked questions we receive is, "How can I find those top-rated, high VST-Vector stocks before they have moved up so far?" The answer can be found by looking at Standard graphs of these stocks. As of Thursday, June 9, Nutri Systems, NSI, was the top stock ranked by VST. Its graph shows that RT went from 0.84 on 08/20/04 to 1.10 on 08/23/04 at a Price of $1.85 per share. Its Price peaked four days later at $1.98; then moved lower. Subsequently, it got an "S" signal at $1.56 with its RT at 0.91. Shortly thereafter, RT crossed above 1.00 again to 1.05 on 10/06/04. Price exploded to $1.89 the next day, and NSI was on its way to the top.

You may look at as many of these graphs as you wish. Invariably, the big price run-ups go back to a time when RT was below 1.00. In some cases, like Urban Outfitters, you may have to go back a couple of years to see the critical RT move, but it's pretty easy to see when it happens. Best of all, we find these moves with a click of a mouse button by using Trends in the UniSearch Tool.

I tested a lot of different combinations of RT crossover sequences to see how well they worked. The one I like the best is illustrated in this week's "Strategy of the Week." It specifies that the stock have three consecutive weeks of RT < 1.0; then one week of RT > 1.0. In doing this work, I found that it was extremely difficult to develop a strategy that gave outstanding results over the last seventeen months. Nevertheless, I could find many big winners by looking at the VectorVest graphs. So I have this suggestion: Learn how to cherry pick your selections using VectorVest graphs.

On December 3, 2004, I wrote an essay called VectorVest Simple. In this essay, I explained how I like to cherry pick stocks using graphs. Basically, I prefer to buy stocks with smooth, steady price patterns. I shy away from stocks with erratic, disjointed price movements. Now let's suppose you ran this week's "Strategy of the Week" as of 08/27/04. This is the Friday after NSI had the RT crossover cited above. (I run this strategy only on Fridays since it entails a week-to-week Trend search.) Highlight the top 10 stocks and click on Graph in the Local Toolbar. Create a Custom Graph extending from 01/03/03 to 08/27/04. This allows us to see only what we would have seen as of 08/27/04. Well, let's see what we have:

1. The top stock, SELA, has been in the database only a month or so, so there's no way I would have bought it.
2. The next stock, HOM, looks like its coming out of a long downturn. It's more volatile than I like to see, but I'll keep an eye on it.
3. SOTK, the next stock, appears to have consolidated after a rally. It, too, is worth watching.
4. The following stock, RGN, appears to be treading water, but its RT has been hitting higher lows. It doesn't cost anything to watch it too.
5. GIGM has had two false RT crossovers in the last six months. Is this another one? Could be, but I'll watch it also.
6. NSI, appears to be making a serious up move after a long consolidation. Its RT hit a low of 0.13 on 08/05/04, then soared to 1.35 on the 08/27/04. It looks like my best candidate so far.
7. The next stock, MRY, is not perfect, but it is also coming out of a consolidation. So let's see what it does.
8. NNPP, is too erratic for me. Does it ever have two days in the same direction?
9. SWB is worse than NNPP.
10. All I have to say for BDSI stock is, "Uga uga, uga, boo boo uga."

So our quick inspection shows that we would have eliminated SELA, NNPP, SWB and BDSI from the candidate list. Quick Test shows that over the next three months nine of the ten stocks went up for an average gain of 46.07%. SELA was the only loser. From 08/27/04 to 06/03/05 nine of the ten stocks went up again, gaining an average of 99.48%. HOM was the only loser and NSI was the biggest winner with a gain of 556.57%. Had I gotten into it based upon the 08/23/04 move, I probably would have gotten out of it when it got the sell signal on 09/16/04. But I would have caught its big up move. Here's how.

Let's face it. It's awful hard to make a purchase decision when you're looking at the hard right side of a graph. So what I do is run searches back in time. For example, had I run this RT crossover search on 09/27/04, 10/27/04 and 11/27/04 using the 08/27/04 search date, I could easily keep track of what these stocks were doing. I would have seen that NSI tanked as of 09/27/04, but took off after that.

You may think all of this is a lot of work, but I don't. Finding winners by bottom fishing is fun...especially Bottom Fishing Using RT Crossovers.

PS. I actually did buy NSI under $4.00, but I used Rocket Boppers to find it.