Ah, if we only had a way of knowing what the market is going to do next. This is what technical analysis is all about...using price history to predict the future. Traders have worked on it for centuries.

Perhaps the most successful technical analyst and trader of all time was Japanese rice broker Munehisa Homma, who amassed a huge fortune trading rice coupons in the late 1700's. He was a keen observer of trader's behavior and noted that psychology and trader's emotions affected prices. By correlating repetitive price patterns to trader behavior, he laid the foundation for Candlestick charting. This background explains why various Candlestick formations are used to predict future price direction from an interpretation of trader sentiment.

Every candlestick is comprised of a body and a wick. The body connects the open and closing prices in the form of a vertical rectangle and the wick is a vertical bar connecting the high and low prices. In the VectorVest system, the body is unfilled when the closing price is higher than the opening price and filled when the closing price is lower than the opening price. Let's open Vectorvest 7 and use our Market Timing Graph to describe some basic candlesticks formations and interpretations.

Using a one-month, end-of-day setting, an unfilled body is shown on July 7th, when the VectorVest Composite opened at $29.51 and closed at $29.75 per share. The high and low prices were $29.79 and $29.45, respectively. A filled body appeared the next day in which the close was slightly lower than the open. The open was also lower than the previous day's close, not a good sign, and the wick's low point was lower than the prior day's low, also not a good sign.

Finally, the filled body of July 8th was engulfed by the unfilled body of July 7th, i.e., its opening price was lower than the closing price of July 7th, and its closing price was higher than the open of July 7th. This two-bar candlestick formation is called a Bearish Harami. It is a warning that the uptrend reflected by the unfilled body may not continue.

It is worth noting that the Color Guard showed two green lights on July 7th and three yellow lights on Friday, July 8th. My commentary in the "Strategy" section of the July 8th, Views reflected concern that, "all was not peaches and cream," and the poor jobs report had seriously shaken investor confidence. Caution was advised. A long filled body appeared on Monday, July 11th, confirming that the rally had been reversed.

Although candlestick analysis worked very well in this example, I don't mean to imply that candlestick charting is infallible. A perfect "Hammer," which suggested that the market had bottomed, was formed on Wednesday, August 3rd. It failed miserably as the Price of the VectorVest Composite dropped $1.32 per share on Thursday.

To be fair, I must admit that "one-stick formations" are early signals and have a relatively poor probability of success. The probability of success increases when two or more candlesticks are in the formation, but they are often harder to interpret. Even though I don't rely on candlestick analysis that much, it's fun to look for Candlestick Clues.

P.S. If you want to learn more about candlestick charting, there's a plethora of information on the internet. I Googled "Candlestick Charting" and got 1,860,000 results in 0.11 seconds.

IT'S TERRIFIC.
If you haven't been visiting the Triathlon Challenge Results Page, you're missing-out on a lot of valuable information. Some of the contestants have turned in fantastic results this week. For example, the overall leader, T-01-DS-PW-LS, tacked on a 14.15% gain this week to raise his overall gain to 344.31%. He was short the entire week and is using "Sinking Sectors II" as his Strategy.

The big winner in the current leg so far is T-10-JL-DEW-LS. He has gained an astounding 22.65% this week and is using a Strategy of his own creation. He's using a sort of RV/RT Asc, which I can't recall ever seeing before. All the details of his portfolio setup are shown on the Results Page. Simply click on http://www.vectorvest.com/Triathlon/ to go to the Results Page. It's Terrific.

FOLLOW-UP ON FOLLOW-THROUGH.
Last week I wrote about checking the futures each day before the market opens to make sure the market is rising when you're bullish and falling when you're bearish. We call this practice "Follow-Through" because the market has to follow-through with the guidance VectorVest has provided to you at the end of the previous day. How well does it work? Very well thank you and Mr. Jamie Curlee has the facts to prove it. Visit the VectorVest University to see this week's very important "Strategy of the Week" presentation: "Follow-Up on Follow-Through."

With stock prices up nearly 100% from the March 6, 2009 low and the Mighty Dow getting whacked for 178 points on Tuesday, more and more investors are wondering if the bull market is coming to an end.

Mr. Doug Kass, President of Seabreeze Partners, recently said on CNBC that last Friday's high of 12,391 could be the high for the year and the market will be essentially flat for the rest of the year. Mr. Laszlo Birinyi, President of Birinyi Associates, also on CNBC recently, said that this is a long-term bull market and don't get shaken out by corrections. Both of these gentlemen are very bright and highly respected, but only one of them will be right. Which one will it be?

I Googled, "Is the bull market ending," and got 4,190,000 results in 0.10 seconds. Well, that clears things up. By the time I got done reading all that stuff I'd be 100 years old, more confused than ever and whatever the market was going to do would be over and done with. So what am I going to do?

I'm going to continue to ignore forecasters and simply take the market one day at a time as it arrives. Of course, I'll keep reading the Views and watching the Daily Color Guard Report. I'm a trend follower and I do my best not to listen to forecasters. No matter how good they may appear to be, all forecasters will be wrong, very wrong, at some time in the future.

Take old Joe Granville, for example. He was sensational for a while back in the early eighties. But he totally missed the great bull market trigged in August 1982. It cost me some money, but it led to his demise.

I was a lot smarter in 1987 when Elliot Wave Guru Robert Prechter was predicting that the Dow would go above 2,700. The market peaked at 2,722 in late August, started to lose ground in September and October; then crashed to 1,739 on Black Monday, October 19th. I was test driving VectorVest in 1987, so I didn't suffer much damage in the October crash. I saw the downtrend develop in September, but I never expected the market to crash like it did. Mr. Prechter, however, claims he warned his clients of the crash on Friday, October 16th. I was a subscriber to his service and never got a call. Nevertheless, he went from being an outrageous bull to a perma-bear, predicting that the Dow would hit 400.

It's interesting to note that the third item listed in my Google search is entitled, "End of the Gold Bull Market?" Click on it and up pops Mr. Prechter's picture along with a headline warning of a bond market disaster. Below it Mr. Ronald Rosen presents his case for the end of the gold bull market. He also points to a place where you could purchase gold at $159 an ounce when it was trading at $1,300 an ounce, an 88% discount.

I could tell other stories of fearless forecasters who crashed and burned, but I think you get the point. Forecasting is A Hazardous Occupation.

P.S. I believe you would enjoy reading my essays of October 17, 1997 and October 19, 2007.

P.P.S. You may also enjoy reading Mr. Adam Shell's article, "Bull Market heads for a Crossroads," which appeared in yesterday's USA TODAY. Google has it too.

EASY RIDER UPDATE.
The original Easy Rider presentation was given one month ago, January 28, 2011. As you may recall, the technique for building and managing the Easy Rider portfolio was simple and the portfolio's performance was excellent. The purpose of this week's presentation is to illustrate, once again, how easy it is to know When to Buy, What to Buy, and When to Sell with the Easy Rider technique. Virtually, all of the information you need to make the right decisions is reflected by the Derby Winners shown on the Home Page.

So do yourself a big favor. Join Mr. Steve Chappell, Director of Educational Services, at the VectorVest University to see a simple, but powerful "Strategy of the Week" presentation: "Easy Rider Update."

When I worked for a living, some thirty plus years ago, I was running a billion dollar business and I was too busy to waste a lot of time looking for stocks I wanted to buy. I was probably too greedy for my own good, but I wanted stocks that would double or triple in price. I didn't want to take a lot of risk, so I looked for stocks of companies with great financial track records. I also wanted to buy stocks that were going up in price. No single source filled the bill. So I created my own.

The system I wanted had to be fast and it had to produce winners. So I based the results of my analysis within a framework of relative indicators, i.e., Relative Value, Relative Safety and Relative Timing. The resultant combinations of RV, RS and RT were embodied in a master indicator called VST-Vector. All stocks could be ranked from the best to the worst with VST-Vector, so the guesswork was gone. The final touch was to give each stock a Buy, Sell, Hold rating and a Stop-Price and I had what I wanted.

The system worked very well for many years, but I was missing a very important factor. This was a precise market timing system. I never was a "buy and hold" investor, so I monitored market direction from the very beginning using the Buy/Sell Ratio, or BSR. While I'm pleased to say it warned me that the market was turning sour in September 1987, a month before Black Monday, October 19, 1987, it didn't have the precision that I wanted. Nevertheless, my eyes were opened in March 1995 when I discovered the market tracking ability of the Price of the VectorVest Composite. This told me exactly what the market was doing, but I still had to understand it better. So I created the Color Guard in December 1998. You can read about it in my essay of 12/18/98. This was the final piece of the puzzle.

If you want to make money in the stock market, consistently and predictably, you need to know when to buy, what to buy and when to sell. The VectorVest system tells you all of these things. Simply see what the Color Guard is saying. It's OK to buy stocks when you see a green light in the Price Column. Pick a top ranked VST stock from Stock Viewer and use the VectorVest Stop-Price as an indicator of when to exit the stock.

VectorVest Product Consultant, Mr. Bryan Barnes, illustrated the efficacy of the basic VectorVest system in last week's "Strategy of the Week" presentation. He produced a 20.42% gain in seven weeks; then tried to get better results by using exit strategies other than Rec = 'S'. He was successful in one of three examples. The bottom line is that picking top VST stocks in an Up market and using Rec = 'S' as an exit criterion is a good place to start when building your portfolio. You can, however, improve your results by using some of the keen Stops we have in VectorVest 7.

In this week's "Strategy of the Week" presentation, VectorVest Product Consultant, Mr. Jerry D'Ambrosio, will demonstrate how to use some very powerful tools to find stocks that may outperform our top VST stocks. Visit the VectorVest University to see how he does it. More money goes into your pocket when you know how to outperform The VectorVest System.

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."