One of the key features of the Yellow Brick Road (YBR) strategy, described in my essay of 10/03/08, is that the portfolio is allowed to extinguish itself, i.e., not replace stocks as they are stopped-out of the portfolio. The purpose of this technique was to lock in profits and mitigate the draw-downs which occur at the end of each campaign. Unfortunately, this neat trick may take you out of the game too soon.

For example, the most recent YBR campaign, discussed in my essay dated 07/31/09, lasted only five days. Although it produced a net gain of 19.8%, I didn't like it. I would have very much preferred to have stayed fully invested, but I followed the guidelines we had set forth. Since then, I have been thinking of ways to solve this and other problems mentioned in my essay of 07/31/09. I believe I have found the answer by becoming a Green Light Buyer.

You may recall from last week's essay, I said that a Green Light Buyer is someone who buys a top VST-Vector stock every time they see a green light in the Price column of the Color Guard. This definition explains the idea of the technique, but is too restrictive. Why not define a Green Light Buyer as someone who plans to buy stocks, any stocks, whenever they see a green light in the Price column of the Color Guard? In this way, they would be buying stocks as the market goes up and they could still enjoy the full power of VectorVest. For example, I ran a back-test in which I bought 10 stocks from the Jail Break Strategy on March 17th and used a 100% Gain and 20% Loss to exit positions. As of yesterday, the portfolio was up 308.74%.

Had I utilized the Green Light Buyer technique from the time I went into cash on July 29th in the YBR portfolio, the gain could now be 69% instead of 45%. OK, so I like being in the game, but not sitting around waiting for the next C/Dn signal. So I'm going to go long again in the YBR portfolio the next time I see a green light in the Price column. I'm not necessarily going to buy top VST-Vector stocks, nor will I feel obligated to buy 10 stocks at a time. I need a little more freedom to do what I want to do when I want to do it. If I'm ever going to get to Emerald City, I've got to be On the Road Again.

Like a train pulling into a station, the C/Dn signal arrived this morning, just as we expected. Of course, it won't be official unless the Price of the VectorVest Composite closes below yesterday's close, but it looks like a reasonably good bet that it will. Even if it doesn't, this is a good time to refresh our memories as to what "The Yellow Brick Road" is all about.
The Yellow Brick Road was introduced to our users in my essay of October 3, 2008. It was defined as a trading system which allows investors to make money in both up and down markets. I said it was easy to use, does not demand a lot of time and can be done at night when the market is closed.

The whole idea with the Yellow Brick Road is to buy high VST, "B" rated stocks on a C/Up signal, manage them according to a precise set of rules, go into cash; then sell-short low VST, "S" rated stocks on a C/Dn signal. The buy to go long Strategy was named "Easy Does It - C/Up" and the sell to go short Strategy was named "Easy Does It - C/Dn." Both are located in a UniSearch Group called, "Yellow Brick Road."

The rules for managing the long strategy were documented in VectorVest Views on September 26, 2008 and demonstrated at the VectorVest University on the same date. The short strategy was documented in the VectorVest Views on October 3, 2008 and demonstrated at the VectorVest University on the same date.

Three campaigns, two C/Up and one C/Dn, have been conducted since last October. These campaigns are documented in the VSA Model Portfolio Group of the Portfolio Manager Tool. The equity graph of the Yellow Brick Road - 2009 Portfolio shows that the first campaign, a C/Up, lost money while the latter two have produced substantial profits. A net gain of 26.13% is currently being shown for the portfolio.

Valuable experience was gained from these campaigns, so there are some things we will be doing that are different from those described last year. For example, we will not necessarily go short with the "Easy Does It -C/Dn" strategy, if and when we do go short. Five different strategies that could be used to go short with will be cited in the Strategy Section of today's Views so that our subscribers do not "move-the-market."

We will not go short on Monday, "come-hell-or-high-water." We will go short only if the market is going sharply lower as indicated by the major averages being down more than 1% each. The exit criteria we use to manage the portfolio will depend upon the strategy we go short with. If we go short with "Worst Performing Contra ETFs - C/Dn," for example, we will use the technique being employed in the "Riding-the-Wave" portfolio. In any case, we will describe whatever exit criteria we use.

Well, it looks like the bulls gave it a pretty good try to get into the green today, but they came up four cents short. So we now have a C/Dn signal and we'll be getting ready for the upcoming Yellow Brick Road - C/Dn Campaign.

WORST PERFORMING CONTRA ETFs - C/Dn.
Q. Why would anyone want to buy the ETFs found by the "Worst Performing Contra ETFs - C/Dn" Strategy when the market goes down?
A. Because these ETFs are the ones that are most likely to go up the most as stock prices fall.

Q. Why is that?
A. First of all, they are virtually certain to go up in price as stock prices go down because of the use of Put Options, Short positions and other contra mechanisms. Secondly, they are the ones to most likely go up the most because they have been beaten down in price the most.

Q. How do you know that?
A. Because they are sorted by RT*CI Asc. Low RT means that their prices have been clobbered. Low CI means that they have been getting clobbered for a long time.

Q. Yeah, but why would you want to buy these guys?
A. Well, it's really the same as Bottom-Fishing except it's the opposite because we're buying Contra ETFs when the market has peaked. If we want to "Buy Low and Sell High," we want to buy the Contra ETFs that have experienced the worst price performance. They will soar as the market goes down.

Q. Can you prove it to me?
A. Yes we can. Mr. Gordon White will do exactly that in this week's Strategy of the Week presentation. He will also reveal some amazing secrets on using Worst Performing Contra ETFs - C/Dn.

Our experience with the current C/Up Yellow Brick Road campaign is much better than the one we had starting on January 9, 2009. What was done differently?

First of all, we took steps to prepare you better for your entry into the market when we got the C/Up signal. For example, I wrote an essay on "Avoiding the Stampede" on March 13th, well before we actually got the C/Up signal on March 26th. Then I wrote another essay on March 20th, called "Off to See the Wizard." This essay explained that we would be suggesting several strategies for you to consider when going long on the C/Up signal because we knew that our subscribers would move-the-market if too many tried to pile into the same stocks at the same time. So we reiterated our guidance on avoiding the stampede and suggested five additional Strategies that were described in our "Strategy of the Week" presentation called, "The YBR Express Lane." Therefore, we suggested six Strategies on March 26th, when the C/Up signal arrived.

We also said, "Please do not buy any stocks tomorrow unless the market is moving higher and please use limit orders." I can't emphasize enough how important it is to buy rising stocks only when the market is rising. Well, the market did not rise the next day. In fact, it got hammered for the next two trading days and the Primary Wave went from Up to Dn. So we sat tight. Finally, on April 1st, the Primary Wave turned to Up again, and we alerted the "Yellow Brick Roaders" to prepare for entry. We went long with "Explosive GRT & EPS Stocks" on April 2nd.

Now, the fun began. It turns out that the suggested Exit criteria for the Yellow Brick Road Strategy was a 50% Gain or 30% Loss. I found that I liked the 50% Gain, but I became increasingly uncomfortable with the 30% Loss. Some of these stocks, such as ALTI, soared early on but came down sharply shortly thereafter. I didn't like that. Why should I be using a 30% Stop-Loss when the stock had soared nearly 36%? Normally, I would raise my Stop so that I could capture most of the gain. Moreover, I'd be a damn fool if I ended up losing 30% on the stock. So I tightened my exit criteria and I began using a Ratchet Stop when I thought the market was getting toppy.

The VectorVest Ratchet Stop is defined as, "the highest Stop-Price reached while the stock was in your portfolio." In the case of ALTI, this would have been $1.09, one cent below our purchase Price of $1.10 per share. The Model Portfolio shows that ALTI was sold at $1.10 per share on April 28th. Subsequently, I began using a 20% Ratchet Stop to exit positions. These Stops are usually higher than the VectorVest Ratchet Stops.

Nevertheless, I ran a back-test this morning just to see what the affect of using a Ratchet Stop instead of the 30% Stop-Loss would have been on this portfolio's performance. As of yesterday's close, the Ratchet Stop portfolio was up 35.71% and the 30% Stop-Loss portfolio was up 40.01%. Our actual gain since April 1st is 36.94%. Not bad in any case. Even though the 50/30 G/L portfolio had the best performance, I still prefer using a combination of 50% Gain and the VectorVest Ratchet Stop.

Five weeks ago, when we got a Confirmed Up signal, I wrote an essay called, "Time to Transition." It was meant to show how stocks with weak fundamentals fly upward in Price when the market rallies from a bottom, but stocks with good fundamentals do not perform as well. The Price performance of the weak stocks, however, tends to peter-out in a relatively short time while the Price performance of the strong stocks tends to get better as time goes by. Therefore, I was suggesting that it was time to transition from picking weak, beaten down stocks with "S" ratings to solid stocks with "B" ratings.

To my amazement, our Bottom-Fishing strategies continued to work well and even outperform high VST stocks, so I have stayed with Bottom-Fishing strategies to the current time. Furthermore, I was quite impressed by last week's "Strategy of the Week" presentation, "Digging for Gold Using Stock Viewer," given by Glenn Tompkins. You may recall that the best result he showed was obtained by sorting by RV, Relative Value, Desc. It was up 87% from 03/10 to 04/23. This result is logical since RV goes up when a stock's Price goes down and the stocks Glenn found certainly had gone down as shown by their low RT, Relative Timing, values.

Hmm, I wondered, what would I find if I looked at the stocks with the lowest RT's? So I sorted Stock Viewer by RT Asc. I really expected to get a lot of crazy, low-priced stocks from this sort, and I did get some. But the percent gain was 230%. Wow! The percent gain from 03/10 to yesterday's close was 274%. Wow! Wow!

OK, the results are astonishing, but how can I get a selection of stocks with better fundamentals? Sort by VST/RT, of course! So I clicked on the Edit button, selected VST/RT from the list of Custom Sorts and clicked on the radio button to the left of Desc. This sorted Stock Viewer by VST/RT Desc. Uh Oh. I got a gain of only 167%. Somehow, I had to start with a list of better stocks. This meant that I had to use UniSearch, which I didn't want to do because the beauty of Glenn's presentation was its simplicity, or I had to use WatchLists.

The first WatchList I tried was Blue Chip Bargains. Sorting by RT ascending worked like a dream. Would it work with the S&P 500? You betcha! Does it work with the Russell 2000? Oh my goodness! The results were incredible. Well, doing this was simple enough. I just open the WatchList of my choice, set the date and sort by RT ascending. Fantastic. So I did this over and over again, testing different combinations of low points to high points as identified on the Market Timing Graph, going all the way back to 1997. The results were fantastic just about every time.

Now I want to use this bottom-fishing technique in managing portfolios. The easiest way is to create Strategies in the UniSearch Tool. These Strategies are named as follows: Blue Chip Bargains/RT, S&P 500/RT, Russell 2000/RT and they're all located in UniSearch in the Strategies - Bottom-Fishing Group. To make things really convenient, we took our other favorite bottom-fishing strategies, such as Jail Break - No Contra ETFs, Blyar's Bottom Feeders/BMB and so on and also put them in The New Strategies - Bottom-Fishing Group.