TENTATIVE BOTTOM

This market is starting to remind me of late 2008, early 2009. The VIX is high and our Market Timing Indicators are low. But we're not near the sorry state that existed back then by a long shot. For example, the VIX hit an incredible high of $80.86 on November 20, 2008 and it hit a high of "only" $45.79 on May 20, 2010 when the Mighty Dow dropped 376 points.

But we know from long experience that when the Buy/Sell Ratio, BSR, goes below 0.20, the market is drastically oversold and it's time to be looking for an explosive rebound in stock prices. Indeed, the BSR closed at 0.12 on May 20th and the market rebounded to the extent that the Color Guard signaled a green light in the Price column on June 3rd. Admittedly, this rebound was only a teeny bounce compared to the 30-day rally which followed the November 20, 2008 selloff, but it has significance in that it failed to develop into a sustainable upturn as did the November 2008 rally. In both cases, the market moved to lower lows. In 2009, the final low occurred on March 9, 2009 and in the current instance, the Price of the VectorVest Composite hit an intraday low of $22.69 per share on Tuesday, June 8th. Will this be the ultimate low for this downturn?

It could be, but don't bet the farm. The good news is that the June 8th intraday low of $22.69 was two cents higher than the previous intraday low of $22.67 hit on May 25th. The bad news is that the BSR closed at 0.13 on May 25th and 0.11 on June 8th. I would have liked to seen it close above 0.13, but there's still more good news. The market has hit higher intraday highs and higher intraday lows each day since Tuesday, June 8th.

The best news is that the Futures took a real shot this morning due to a poor Retail Sales report, but recovered quickly on a better-than-expected Consumer Sentiment report. This shows that bargain hunters are alive and well. But they aren't as greedy as they should be. Upside volume has been weak and leads me to label the June 8th low as a Tentative Bottom.

TAMING THE TIGER WITH BEAR CALL CREDIT SPREADS.
Due to the extreme volatility we were experiencing in late 2008, we made a series of presentations with the theme of "Taming the Tiger," i.e., coping with volatility. The way to do this, we said, was to execute low-risk trades by hedging your bets. On 12/05/08, for example, we illustrated how to protect yourself by hedging your short stock positions by buying out-of-the-money Call Options. We then followed up with more presentations incorporating this theme. Now is the time to re-visit this low risk approach to making money. To see how it's done, visit the VectorVest University to see Mr. Glenn Tompkins, who, incidentally gave our first Taming the Tiger presentation, give this week's outstanding "Strategy of the Week" presentation, "Taming the Tiger with Bear Call Credit Spreads."