Stock prices took off with a bang this year with huge gains on the first day of trading followed by five more consecutive up days. Only four times in the last 82 years has the S&P 500 Index started a year with five consecutive up days, let alone six consecutive up days. So there was no telling where the market was heading, but there are ways to get some clues.

According to the 2010 Stock Trader's Almanac's First Five-Day Indicator, the S&P 500 will end the year higher when the S&P 500 goes higher in the first five days of trading. The S&P 500 has gone up 31 times in the last 36 years and the S&P 500 has ended the year higher 86.1% of the time. The average gain for all 36 years is 13.7%. Not bad. So things were looking very good for 2010 after the first full week trading. But the S&P 500 went down on January 12th; then again on January 15th, and, my goodness, three more times on January 20th, 21st and 22nd; then two more times on January 26th and 28th. Now the delicious gain after the first six days is gone and the S&P 500 is even down from its December 31, 2009 close. So what's the market going to do now?

Well, let's see. The Stock Trader's Almanac says the January Five-Day Indicator has a spotty record - almost a contrary indicator in midterm election years. In the last 15 midterm years, only seven entire years followed the direction of the First-Five Days and only one of the last eight, 2006. The full-month January Barometer has a much better midterm record of 66.7% accurate. In other words, 10 of the last 15 midterm election years followed January's direction. Every down January on the S&P 500 since 1950, without exception, preceded a new or extended bear market, a flat market, or a 10% correction.

Wow, this doesn't sound good. What does it mean? First of all, it says that since the S&P 500 went up during the first five days of January, the Indicator (which is pretty unreliable and has acted like a contrary indicator in midterm elections) is pointing to a down year. Since the S&P 500 is down for the full month, there's a 66.7% chance that the S&P 500 will end the year lower than 2009's close of 1115.10. Moreover, the bear market will have been extended, or the market will have been flat or experienced a 10% correction, if the S&P 500 does close the year lower.

OK, so that's what the Stock Trader's Almanac says, but what do I think? Well I'm not quite that gloomy and the main reason is that S&P 500 Earnings have been rising and our trend indicator of S&P 500 Earnings, as shown in the Market Climate Graph, is about to go above 1.00. My belief is that stock prices will rise as long as earnings continue to go higher. Sure, we could have a 10% correction, but rising earnings will trump The January Barometer.

HOW TO TRADE CONTRA ETFS.
The market has been nasty lately, punishing stocks with good earnings as well as bad, so we finally caved in and started buying Contra ETFs. If you are not familiar with these stocks, you must see this week's "Strategy of the Week" video. Please join Mr. Todd Shaffer, Senior Instructor and Product Support Consultant, at the VectorVest University to see this week's very important presentation: "How to Trade Contra ETFs."

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.

VectorVest is pleased to announce the introduction of a new video presentation called "The Daily Color Guard Report." This report will provide a concise analysis of the stock market's daily activity as seen through the eyes of the Color Guard. It will also provide guidance for various investment styles, along with a report of the day's five biggest winners from the VectorVest RealTime Derby.

The Daily Color Guard Report may be accessed by clicking on a button which will appear beginning June 1, 2009 on the home page of VectorVest U.S. and related products. It should be available by 8:00 pm EST, Monday through Thursday. The traditional Market Timing presentation will continue to be available at the VectorVest University each Friday. So go where the action is: The Daily Color Guard Report.

DERBY READY STRATEGIES.
As if VectorVest RealTime weren't exciting enough, the VectorVest RealTime Derby is going to be a blast. This tool may well revolutionize real time trading. It runs dozens of strategies either at the previous day's close or the current day's open, (it's your choice), creates mini-portfolios of the top ten stocks from each strategy; then tracks each portfolio's performance from the current day's opening bell. Watching these portfolios break out at the open and perform during the day is akin to going to a Race Track. That's why we call it the VectorVest RealTime Derby.

In developing this incredible tool, we have learned that very low-priced stocks, low-volume stocks and/or Pink Sheet stocks often appear in the midst of things, and we don't think it's a good idea to trade them in real time. THEREFORE WE ARE REVISING MANY OF OUR EXISTING STRATEGIES TO EXCLUDE STOCKS LESS THAN $1.00 PER SHARE, STOCKS WITH AVGVOL LESS THAN 100000 AND/OR PINK SHEET STOCKS. ALL LONG STRATEGIES WILL BE AJUSTED TO EXCLUDE CONTRA ETF's.

In other words, all the portfolios used in the VectorVest RealTime Derby will have stocks that are equal to or greater than $1.00 per share, AvgVol equal to or greater than 100,000 shares per day and not traded on the Pink Sheet exchange. Long portfolios will not contain any Contra ETF's. This is made possible by using only Derby Ready Strategies.

The explosive rally we had been expecting for the last two weeks finally arrived on Tuesday morning. I was ready for it, sitting at my computer when the market opened on Tuesday, just as I had described in my February 13, 2009 essay, "Another Day at the Races."

I was looking at my VectorVest RealTime QuickFolios of the five strategies suggested in Monday night's Views. Wow, "Jail Break - No Contra ETFs" exploded out of the gate and was up over 15%. After a few more minutes, all five of my QuickFolios were moving higher. "Jail Break - No Contra ETFs" was up the most, way ahead of the pack. I was itching to buy, but I waited until 10:00 AM. "Jail Break - No Contra ETFs" was up 17% by then. Obviously, I wasn't the only one eager to buy those stocks. Fortunately, "Jail Break - No Contra ETFs" continued to go up that day and closed with a gain of over 30%.

The next day, Wednesday, "Jail Break - No Contra ETFs" was up another 14% at the open. The Midnight Cowboys who placed orders to buy at the open, but didn't use limit orders, were hung out to dry. I have seen this happen many times before and it's precisely the reason why we try to avoid suggesting specific strategies at specific times. We learned a long time ago that a stampede into a hot strategy moves the market, and that's not good for anybody but the market makers. Although we didn't specifically suggest using "Jail Break - No Contra ETFs" on Tuesday night, it was the strategy we went long with in our Model Portfolio and it was a logical choice to use on Wednesday. So how can we avoid getting caught up in the stampede to buy stocks?

The best way, if you're right, is to get in ahead of the crowd. In this case, it wouldn't have been that hard to do. We had been advising of the possibility of an explosive rebound for almost two weeks and reinforced the message last Friday with my essay, "Itching to Rally." Additionally, we tried to make this buying opportunity eminently clear with our comparison of current market conditions with those of the October 2002 bottom. Had you jumped in early on Monday and bought the top 10 "Jail Break - No Contra ETFs" stocks at 3:45 PM, you would have had a gain of over 67% at 10:15 AM this morning. Of course, this example uses perfect hindsight and we're never going to tell you to buy stocks until we see the market moving sharply higher. But jumping in a little early with part of your cash is not that bad of an idea when the evidence is compelling.

Another, possibly preferable, way of avoiding the bull's rush is to alter an existing search. The secret to these searches was revealed in my essay on "Jail Break," dated November 28, 2008. It's simply a matter of dividing a desirable factor, such as RV, RS, or VST, by RT. This week's "Strategy of the Week" presentation will demonstrate a simple alteration to our favorite bottom-fishing searches that could be just what you're looking for. Using what you learn, you may want to create your own search. It's not hard to do, so give it a shot.

Another way of not paying inflated prices is to pick a strategy that you know works, but didn't jump out of the gate that fast. I've seen this happen with Pirates Long on several occasions. I don't know why it happens, well, maybe a 207% gain in TWC may have something to do with it this time, but Pirates Long was up only 15% on Tuesday and its up 62% as I write this essay.

So even with great guidance and super strategies, the final step to making the most money lies in Avoiding the Stampede.