We have great news folks. As of today, a new release of VectorVest 7 with expanded MA Crossover search capabilities is being launched. You will be prompted to automatically update VectorVest 7 within the next week. If you would like to get the new version right away, please go to http://www.vectorvest.com/install/vectorvest7 and click the download button.

With the new build, you will be able to run the "The Long-Term Winners" Strategy which was introduced in my essay dated April 21, 2011. You may recall that this Strategy produced a gain of 154.77% in a little over two years with only thirteen trades, 12 winners and one loser. Unfortunately, it was demonstrated in VectorVest 6, which some of our users do not have. (I should also note that whether you are using VV6 or VV7, you must have VectorVest ProTrader installed in your software. If you wish to get a free two-week trial of VectorVest ProTrader, please click here call Product Support at 1-888-658-7638.)

Now that I was able to run these searches in VV7, I was eager to take them for a test drive. The first thing I did was to create the "Long-Term Winners" search in VV7 and checked to see if it returned the same stocks as VV6. I was pleased to see that it did. I then tried to duplicate the results shown above with the VV7 Backtester. Uh oh. I ran into a problem. The Backtester only allows Gain/Loss% setting up to 100/100 and we had used a setting of 200% Gain/20% Loss to get the results shown. The 100%/20% setting didn't work as well, so we will get this problem solved in our next release.

Not to be deterred, I ran a wide variety of tests and concluded that the original "Long-Term Winners" Strategy is too restrictive. This shortcoming was made apparent by a great new feature in VV7 which allows us to find the crossovers in a window lasting from one to five days. Wow, running a simple 10x65 Day Price MA Crossover search with no other conditions on 12/31/10 returned 39 stocks whereas the original "Long-Term Winners" Strategy found only one stock.

Quick Test showed that the stocks returned by the simple search with a one-day window produced 19 winners and 20 losers from 12/31/10 through yesterday's close. Running the simple search with a five-day window returned 99 stocks with 61 winners and 38 losers. With this many hits, all I had to do was to fine tune the search a little bit and find an effective sort. You'll never guess what that is, but I think you'll like it. I named the search "Long-Term Winners II" and I'm pleased by the results it produces.

Finally, I want to thank our developers for their great work and for Casting a Bigger Net with VV7.

LONG-TERM WINNERS II.
Join Mr. Brian D'Amico at the VectorVest University to learn all about this great new search in this week's "Strategy of the Week" presentation: "Long-Term Winners II."

I received an email from a subscriber about a week ago, asking about our "Strategy of the Week" selections. He wrote, "I have always assumed that the strategy of the week was a strategy that could be used at the time it was written and this is the problem. In my opinion since the middle of December and more so in January 2011 the market has moved sideways, up one day and down the next.

So when this past week's strategy, Double Ups was defined I created a portfolio starting Jan 3, 2011 as I am looking for a strategy that works in today's market. Well, Double Ups made money from Sept to Jan this year, however, from January 3 to January 20 this strategy lost 10.21%.

Your tech department agreed with my numbers, however we could not agree on the purpose of the Strategy of the Week. I want to use it as a strategy that will work with current market conditions and your market department said it was to show how different strategies work. Using the time period from September 2010 to now almost any strategy would make money, but I'm looking to make money under current conditions and was hoping that the strategy of the week would work."

First of all, let me say that I like this guy. He's willing to do some homework and his analysis of the market was reasonably correct. He was also on the right track when he back-tested the Strategy before using it with real money. However, I ran into a problem when I attempted to verify his statement that "Double Ups" had lost 10.21% from January 3rd to January 20th. I found that the Strategy, when run as demonstrated, had lost 7.34%, not 10.21%.

I then wondered if he had used Quick Test to check the Strategy's performance. Quick Test showed a loss of 7.83% from 01/03/11 through 01/20/11. So I ran Quick Test over a variety of periods up through January 24th, the day he sent his email. The largest Quick Test loss I found was 8.78% on January 21st. However, I did find a loss of 10.73% on January 25th, the day after he sent his email.

Nevertheless, I decided to run the Strategy from the Confirmed Up date, September 9, 2010 to yesterday, February 3, 2011. It's was up 46.34% compared to 36.84% as demonstrated on January 21, 2011. Now, back to the original question, i.e., are the "Strategy of the Week" presentations meant to be used "under current conditions?"

The primary purpose of the "Strategy of the Week" presentations is to introduce effective new ideas and techniques. We try to make them consistent with current market conditions, but the market can change in the time it takes to put a presentation together. That's what happened in this instance. The market was in rally mode early in the week, but turned mildly bearish on Friday, the 21st. We went ahead with the "Double Ups" Strategy because it had performed very well and we wanted to introduce it while it was still fresh. So let's put it in our list of things to try at the beginning of the next upturn.

If the writer wanted Strategies that he could use under current conditions, he needed to look at the Views. Each day we publish the names of the top five one-day and the top five five-day Derby Winners. These Strategies are that day's 10 best performers as determined by the VectorVest RealTime Derby. "Easy Rider," last week's "Strategy of the Week" presentation, showed us exactly how to make money with these Strategies under any market conditions. You can't ask for more than that from our Strategy of the Week Selections.

DON'S DIVIDEND DANDIES.
Retirement Strategies haven't been forgotten. We continue to teach and implement the PayDay Portfolio and it has been doing very well, thank you. But the Retirement Strategy that has been sizzling hot is none other than "Don's Dividend Dandies." So visit the VectorVest University to see Mr. Brian D'Amico, Manager of Internal Training, illustrate how easy it is to increase the size of your retirement nest-egg in this week's "Strategy of the Week" presentation: "Don's Dividend Dandies."

I introduced the subject of Net Profit Margin, NPM, two weeks ago because first quarter earnings reports were quite good, but that wasn't good enough for many analysts...they were looking for signs of better sales growth. Everyone knows that sales growth is vital to a company's long-term viability. Increased sales normally lead to rising earnings which, in turn, drive a company's stock price higher and higher. So the best situation is one in which a company has a positive NPM and rising sales and earnings.

So I created a search in which NPM was > 0.00 and EPS and SPS were both higher than they were 39 weeks ago. My first test found 1,115 such stocks, as of yesterday's close. They showed an average Price increase of 8.34% since 12/31/09 with 788 winners, 320 losers and seven unchanged. I then ran a test in which NPM was negative and EPS and SPS were falling. I was certain these stocks would have been destroyed. But they were not. I found 754 stocks which showed an average Price increase of 13.63%, with 460 winners, 275 losers and 19 with no change. I was surprised at these results, to say the least. So what's going on?

I didn't know, but I did see that the average Price of the stocks in my first test was $29.57 per share and that of the second test was only $5.40. This could be the difference maker since we have seen, time-and-time again, that low-priced stocks pop the most in a rally. When I adjusted the search to disallow stocks less than $1.00, I found 557 stocks with an average Price of $7.03 per share. They gained only 12%, but this was still better than I had expected.

Undaunted, I still believed that stocks with positive profit margins should outperform those with negative margins. So I decided to change the searches I used above so that I could study the effects of NPM Deltas. Without going through all the gory details, I was truly shocked by what I found. This search found 236 stocks as of yesterday's close that have gained an average of 20.90% since 12/31/09, with 163 winners and 73 losers. Yes, the average Price was relatively low at $6.24 per share, but these results tell me a story.

The world loves a fighter who comes off the mat and wins the match. Think about Ford Motor Company. You could have taken it for dead 15 months ago, but they turned things around. Their NPM may have been negative but it was on the way to recovery. Ford's making money right now and its stock is doing just fine. A lot of the stocks found by this search never will make money, but those that do, will soar. I added the search to the Net Profit Margin Group in the UniSearch tool. I call it "The Comeback Kids."

P.S. I still prefer to own stocks of companies with positive NPM and rising EPS and SPS, but if you like to bet on underdogs, this search is for you.

CHEERING FOR THE COMEBACK KIDS.
Many of these stocks may be down, but they're not out as you will be able to see from the great results that are possible with "The Comeback Kids." Mr. Steve Chappell, Director of Educational Services, will be tonight's promoter, trainer and referee in managing these lightweights. So join Steve at the VectorVest University to see this week's exciting "Strategy of the Week" presentation: "Cheering for the Comeback Kids."

About 30 years ago, I was in charge of a billion dollar business that was largely involved with a commodity, plastic. We were the world's leading producer of this plastic, making over two billion pounds a year. In order to cut costs, the business was integrated back to its basic raw materials that came right out of the ground. In fact, the plastic was called Geon, which was derived from the word Geo, of the earth.

In running this business, the name of the game was to produce a quality product at the lowest possible cost. Just do the math. One cent taken two billion times is $20,000,000. Our goal was to continue to be the world's low-cost producer and we worked very hard at it. But cost reduction alone wasn't enough to make a good profit. You also needed pricing power, which was impossible to get during a recession like we had in the early 80's.

Yes, I remember the early eighties very well...they were so reminiscent of what we have today. Cost cutting is king and pricing power is nowhere in sight. Last quarter's profits are deemed to be good, but investor's want to see sales growth because you can't cut costs forever. But, hey, all businesses aren't commodity businesses. There are companies out there that make specialty products, have pricing power and good profit margins. Who are they and how do you find them?

You use VectorVest, of course. All you have to do is create the following parameter: 100*(EPS/SPS), by using the Custom Field Builder. The 100 converts the ratio EPS/SPS from a fraction to a percentage. Since EPS is the forecasted Earnings Per Share and SPS is Sales Per Share, the new parameter gives you the Net Profit Margin, NPM, in percent. Let's see how well it works. (Dan Misch will show you how to create this parameter as an addendum to tonight's "Strategy of the Week" presentation).

You may recall from my November 10, 2006 essay, "How I Use Stock Viewer," that I like to use Stock Viewer to explore the extremes of all the various indicators and parameters in our database, so I put our new parameter into Stock Viewer and sorted by 100*(EPS/SPS) Desc. A stock called Targa Resources, NGLS, popped to the top of the list as of March 4, 2010. I took a look at its graph and it's beautiful. Wow, it has an NPM of 2,400%. Are you kidding me? VectorVest showed an EPS of $1.20 per share and SPS of $0.05 per share. So the math is OK. What about the data?

I clicked on News at the top of the Stock Viewer screen and a page from Yahoo!Finance popped up. I immediately saw that NGLS was a Limited Partnership, LP, so I was prepared to see some bizarre stuff...but nothing like I actually saw. I clicked on Key Statistics; then scrolled down to Income Statement. It showed that NGLS had Revenue of minus $1.52 billion and EPS of $0.66 per share over the last 12 months. VectorVest shows Sales of $3,180,000 and forecasted earnings of $1.20 per share. So who's right? I think VectorVest is, but if Yahoo!Finance is right, they ought to send whoever is running Targa to Congress.

Next I set the date in Stock Viewer to March 10, 2009, i.e., the day we saw the market explode from the Bear market bottom. I sorted by 100*(EPS/SPS) Desc., and ran a Quick Test from 03/10/09 to yesterday's close. It was up 118.42% with eight winners and two losers. Not bad, but the big winner was a $0.30 stock, which I didn't like. So I created a Derby Ready Strategy that I called NPM Analyzer and I put it into a new Group called Net Profit Margin. I ran the search as of 03/10/09; then ran a Quick Test through yesterday's close. It was up 65.07% with 100% winners. The big winner was Baidu.com, up 214.41%. Hmm, maybe, I have something here. I set the search date to 03/17/09, the first day we got a Green light after the March bottom and ran the test. Uh-oh. It was up only 29.93%. So I tried it on 03/26/09, when we got a C/Up signal. The result was better, up only 38.16%, but still somewhat disappointing.

I figured I had to adjust the search to return better stocks. So I set VST > 1.25 as one of the criteria and tried that. This search returned a better quality of stocks, but its overall performance was substantially worse than before. Out of curiosity, I decided to sort by 100*(EPS/SPS) Asc., instead of Desc. Remarkably, I got much better results with gains of 57.38%, 123.36% and 107.18%. Unbelievable! I then began to pick dates at random. In every test I ran, the Asc., sort beat the Desc., sort. What was going on?

I thought of Mr. Carlton Lutts, former editor of The Cabot Market Letter. He loved to pick stocks that were unknown, not yet making any money but were expected to. Many of his picks would sky rocket; then crash. When that happened he would say the love affair was over. He said that stocks were romanced before they started making money; then the accountants took over when they finally started to make money and they plunged. In honor of good, old Carlton, I called the revised Strategy, Romancing the NPM.

WINNING BIG, THE EASY WAY: FOLLOW UP.
We got so many questions regarding last week's "Strategy of the Week" that we decided to clarify exactly how those phenomenal results were obtained. We want you to know exactly how to use the 5-Day Derby Winners because it could be very big if it fulfills its promise. So join Mr. Dan Misch at the VectorVest University to see this week's very important "Strategy of the Week" presentation: "Winning Big, The Easy Way: Follow Up."