Six weeks ago, June 11th to be exact, I wrote an essay called, "Tentative Bottom." That turned out to be oh so true. This time, I think it's different.

Caterpillar bulldozed the Bears out of the way yesterday, leading a strong rally with news that its orders are growing and production will increase in the second half of the year. UPS also raised its outlook because of more spending by businesses. These reports support evidence of increasing economic activity as seen by rail shipments which have been increasing for the past several months.

In another good sign, investors pushed bad news on housing and unemployment aside, rationalizing that it could have been worse. They focused instead on earnings reports from a wide range of companies that showed little sign of a slowdown in the economy. This behavior is reminiscent of that at the bear market bottom in March 2009. Is the market ready for a sustainable rally?

As I said last week, the combination of low inflation, low interest rates and rising earnings is the perfect recipe for driving stock prices higher. This week, it finally appears that stocks of companies with great earnings reports are getting rewarded with higher prices. Those companies who missed their forecast got punished. That's the way it's supposed to work. A quick look at our Market Climate Graph shows that forecasted S&P 500 earnings are expected to soar higher into next year.

Going back to the January - February 2009 period, it is interesting to note that the Price of the VectorVest Composite was caught in the jaws of a Wicked-Wedge as it has been recently. Back then the market broke to the downside on February 10, 2009, leading to the March 9th bottom, which we nailed. Yesterday, however, the Price of the VectorVest Composite broke-out to the upside, which I view as a positive sign. This view is supported by the fact that the Price of VectorVest Composite hit the low point of $22.57 per share on 07/06/10. This was only nine cents above the $22.48 per share support level hit on 02/08/10.

The market rallied almost three months from the 02/08/10 support level to a closing high of $26.29 per share hit on 04/23/10. While I doubt that this is likely to happen again, we could see the market rally into the September - October time frame. Exactly 50 trading days passed during the downturn from the 04/23/10 high to the 07/06/10 low. That seems long enough to me. Thirteen trading days have passed during the rebound from the 07/06/10 low to today, and the Price of the VectorVest Composite went up for two consecutive five-day periods yesterday, giving a preliminary signal of a sustainable upturn. The Color Guard also flashed a Green Light in the Price column yesterday.

Now all of this happened several times during the bumpy downturn from the April 23rd high, so don't run out and bet the farm on this rebound. We are not reliving the March 2009 bottom. A nascent rally has begun, however, and we could be seeing A Breakout Bottom.

THE MONEY MAKER.
The up and down price fluctuations we have encountered since the market peaked on April 26th, have made it awfully hard for most stock traders to make money. But those who trade stock Options have found a bonanza. Volatility causes Option premiums to go up, making them more expensive. Therefore, it was a good time to sell Covered Calls. That's exactly what we have been doing in the PayDay Portfolio, which was up 26.64% as of yesterday's close. How does one sell juicy Covered Calls? Mr. Glenn Tompkins, Manager of Educational Services, will show us. So visit the VectorVest University to see this week's money making "Strategy of the Week" presentation: "The Money Maker."

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.
Charles Dickens, "A Tale of Two Cities"
English Novelist (1812 - 1870)

The present is so like that period past, I have an uneasy feeling in my bones. I've never seen a greater disparity of views on what our country should do and where the financial markets are heading. There are those who believe we are all going to hell, while many believe our glory days still lie ahead.

Alas, matters political are beyond the scope of this essay, so let's take the stock market for example. Yesterday, I had just finished watching a video in which the speaker made an extremely strong case for the onset high inflation and rapidly rising interest rates due to our profligate spending, when I saw Mr. Ken Heebner on CNBC speaking enthusiastically about the great bull market that lies ahead. Now I know that there will not be a great bull market if inflation and interest rates run wild. I also know that Mr. Heebner is a great investor, so he could be right. But I take what he says with a grain of salt because he is always bullish and he was bullish throughout the recent crash.

To add to the confusion, yesterday's Wall Street Journal ran a front page article entitled, "Evidence Mounts of Strong Recovery," but yesterday's Jobless Claims report didn't suggest that a strong recovery is on the way. Moreover, Fed Chairman, Ben Bernanke, was reported in the Journal to express an "optimistic but cautious" view of the economy and pointed to a "sharp and dispersed slowdown in inflation." That means he's not confident of a strong recovery and he'll not raise the Fed Funds rate soon.

Finally, I received an unsolicited email from a newsletter writer who has been predicting a market crash for over a year now. He promised to not send anymore warnings until the crash finally occurs. Is today's 126 point drop in the Mighty Dow the start of the predicted crash or are we about to embark on another leg of this great bull market?

I'll take my clues from the Color Guard rather than ponder over A Dickensian Rhapsody.

ATTENTION GOLD BUGS.
You may want to re-visit Ms. Angel Clark's excellent 12/31/09 "Strategy of the Week" presentation, "The Midas Touch." I look at it regularly and it appears to be close to giving a buy signal. As of 04/15/10, the Mining(Gold\Silver) Industry Group has an RT of 1.05 with an RT Rank of 176, so it's still early in this up move if it blossoms.

TGIF: WHEN TO WIN BIG THE EASY WAY.
On February 26, 2010, we introduced you to a "Strategy of the Week" called "Winning Big the Easy Way." It showed how one could trade the 5-Day Derby Winners from Friday-to-Friday and make big profits. The results were so impressive that our users wanted to learn more about the strategy. So we gave another presentation on March 5, 2010 which provided detailed, step-by-step, instructions on how to conduct the strategy. A week later, we gave a third presentation in which we illustrated how one might implement the Strategy on days other than Friday. Since then we have tested the Strategy in detail to see how it performed on each day of the week. You will be surprised by the results we obtained. So join Mr. Todd Shaffer, Manager of Research, at the VectorVest University to see this week's startling "Strategy of the Week" presentation: "TGIF: When to Win Big the Easy Way."

When it comes to assessing the Investment Climate, we pay particular attention to the trends of earnings, inflation and interest rates. As of last week's analysis, shown in the Climate section of the Views, we are in a Case 4, Bull Market Scenario in which earnings, inflation and interest rates are rising. Is this good or bad for stock prices?

As CNBC commentator, Mr. Larry Kudlow, likes to say, "Earnings is the mother's milk of the stock market." I agree. The VectorVest "Truth Chart," first described in my essay dated March 21, 2003, shows that Bull Market Scenarios exist when, and only when, earnings are rising. How do we know when earnings are rising? We access the S&P 500 WatchList, click on the Summary row at the bottom of the WatchList, click on Graph in the Local Tool Bar and display EPS to see the 52-week performance of average forecasted earnings per share of all the stocks in the WatchList. We then conduct a trend analysis of a 50-Day moving average of this EPS data and report it each week in the Climate section of the Views. It is also shown graphically in our Market Climate Graph, found by clicking Graphs on the Main Tool Bar. With a very favorable trend reading of 1.36, the earnings picture looks good. But what about those other rascals, inflation and interest rates?

I know, I know, we hear it all the time. Inflation is not a problem. But our trend indicators for the Consumer Price Index, CPI, and Commodity Research Bureau Index, CRB, show that inflation is rising rapidly. The CPI has a very unfavorable reading of 0.01 and the CRB has a modestly unfavorable reading of 0.92. Remarkably, a front page article in Monday's Wall Street Journal said that, "an influential band of policy makers (within The Federal Reserve) is fretting over the opposite: that the already low rate of inflation is slowing further." In other words, they are more concerned about deflation than they are about inflation. My goodness, this kind of cockeyed thinking got former Head of The Fed, Alan Greenspan, in trouble.

We also hear Dr. Ben Bernanke, current Chairman of the Federal Reserve Board, say that he will keep interest rates low for the foreseeable future. I believe him, but he doesn't control market interest rates. He has tremendous influence over market rates with his decisions on monetary policy, but he only controls the Fed Funds Rate and the Discount Rate. I prefer to track market interest rates, i.e., the 90-Day T-Bills, 10-Year T-Notes, and 10 Yr.+ AAA Corporate Bonds, because they give us a better reading on what the Investment Climate is really like.

October 24, 2003, I wrote an essay on, "The Case (4) Scenario." If you substitute the name of Ben Bernanke for Alan Greenspan, you would think I wrote that essay yesterday. Dr. Greenspan was severely criticized, if not berated, this past Wednesday by members of the Financial Crisis Inquiry Commission for his performance as Fed Chairman prior to the housing bubble and near collapse of our financial system. You may recall that Dr. Greenspan raised interest rates throughout the stock market's collapse in 2000 and only began to lower them in 2001. He lowered them again and again, bit by bit, until he got the Fed Funds Rate down to 1.00%; then kept them there for much too long of a time. He said he was fearful of deflation.

Now we have Dr. Bernanke following essentially the same path of raising interest rates too high; then lowering them to historically low levels. And it comes out that some members of his policy making team are afraid of deflation. Will he follow in Dr. Greenspan's footsteps and keep interest rates too low for too long? It all depends on his perception of inflation. Yes, inflation: The Wild Card.

With interest rates at historically low levels, more and more senior investors are adding dividend paying stocks to their retirement portfolios. This message has resonated throughout the financial services community and Barron's magazine has now entered the fray with a cover story on "10 Terrific Dividend Stocks."

My first reaction to any article such as this is to ask, "What would VectorVest say about these stocks?" In this case, I was familiar with all ten of the stocks, CVX, INTC, JNJ, MCD, NVS, NSRGY, PEP, PG, STD and VZ cited in the article because they all represented large, well established companies. So I created a new WatchList Group called "Dividend Stocks." I put the 10 stocks into a WatchList called, "Barron's 10 Terrific Dividend Stocks." Oops, Nestle, a pink sheet ADR, was not found in our database and was not added to the WatchList. (We are seeing if we can get the data required to add it.)

Nevertheless, the WatchList showed that on 11/20/09, seven of the 9 stocks were rated "B" and two "H." The average RV and RS of the 9 stocks were above 1.00, and that is good. The average Forecasted Earnings Growth Rate, GRT, was -1, and that is not good. The average Dividend Yield, DY, was an acceptable 3.50%, but the average Dividend Growth, DG, was only 3.00%/Yr. Overall, I thought this was an OK portfolio, but not too exciting.

Could VectorVest do better? To answer this question, I created five more WatchLists, one for each of the five Retirement Strategies we have created, and put them into the Dividend Stocks WatchList Group as well. Here's a summary of what I found as of 11/20/09:

Name...........	Avg$/Sh	AvgRV	AvgRS	AvgGRT	AvgEPS	AvgDiv	AvgDY	AvgDG
Barron's 10	49.63	1.24	1.16	-1.0	3.85	1.72	3.50	3.0
Blue Chip Bnzs	52.78	1.47	1.18	11.0	4.72	1.16	2.20	13.0
Don's Dandies	29.36	.32	1.02	6.0	2.32	0.93	3.20	6.0
Optionable 2x4s	32.98	1.59	0.95	19.0	4.13	3.36	10.20	12.0
High VST+YSG	50.93	1.57	1.41	19.0	2.98	0.54	1.10	16.0
High Yield	24.18	1.48	0.89	13.0	3.38	3.29	13.60	7.0

Life is a matter of trade-offs. If you want high performance, i.e., the WatchList with the highest RVs, RSs and GRTs, you get low yield. If you want high yield, you get low safety. All of the WatchLists created by VectorVest searches had higher average RVs, higher average GRTs and higher averages DGs than the stocks in the Barron's 10 Watchlist. Only two of the Vectorest WatchLists had higher average RSs, and only two V V WatchLists had higher DYs than the Barron's 10.

If I had to pick one strategy to run with, I'd pick the High VST+YSG strategy and trade Covered Calls to generate income. But you, dear reader, can pick and choose your stocks one by one. See if you can put together a 10 stock WatchList that is better, in all respects, than Barron's 10 Terrific Dividend Stocks.

CHERRY PICKING HIGH PERFORMANCE STOCKS.
The VectorVest RealTime Tote Board makes it incredibly easy to see which strategies have performed the best each day. But the real question is which strategies are most likely to perform the best tomorrow? We want to pass this information on to you because the best way to make big profits is to place your bets BEFORE the market opens. How can you do that? Mr. Jerry D'Ambrosio, Product Support Specialist and Instructor, will show us how. So visit the VectorVest University to see this week's terrific "Strategy of the Week" presentation: "Cherry Picking High Performance Stocks."