Last week I demonstrated how to use the Standard VectorVest graphs to analyze the directional price movements of Industry Groups and Business Sectors. This week, I'll do the same thing with a ProTrader graph set-up that is easier to interpret and, perhaps, even more effective in revealing forthcoming changes in price direction.

As I said last week, I make it a regular practice to look at the Industry Group and Business Sector Viewers. So let's start out again this week by clicking on Viewers in the Global Toolbar and selecting Sector Viewer. By golly, "Steel" is still ranked at the top of the list with the highest RT. As I did last week, let's set the date in the Drop Down Calendar to 08/02/05, the day the market peaked. Click on Quick Test in the Local Toolbar, select "Test All Items," and click on OK. Sort the %Price Change column in ascending order. "Steel" is still among the hardest-hit sectors with a price decrease of 3.89% from 08/02 through 08/25, but look at the "Food" sector with a decrease of 9.78%. Wow, I thought "Food" was a defensive sector and would hold up well in a downturn. Let's look at its graphs.

Close Quick Test, click on the row marked "Food," and click on Graph in the Local Toolbar. The Standard VectorVest Graph shows Price, Stop and a 40-day MA of Price in the upper portion and RT in the lower portion. I like to augment this graph by adding the 20-day MA of Price. The graph clearly shows that Price peaked on August 2nd, crossed below the 20-day MA on August 4th and fell below the 40-day MA on August 5th. Unfortunately, it appears that this graph didn't give any obvious warning signs of such a downturn in Price. So let's look at the ProTrader Graph.

The ProTrader Graph set-up I like to use is a 3-month, Daily graph that shows Price as a line, Envelopes, using the default 10 and 6.00 settings and a 30-day Weighted Moving Average, WMA. I also use the Moving Average Convergence Divergence, MACD, with the default settings of 9, 12, and 26, and finally, the Detrended Price Oscillator, DPO, with a setting of 20 Periods showing Area instead of a line. Many of you may recognize this graphical set-up as being similar to that often used to time the market.

Like the Standard Graph, this graph also shows that the Price of the "Food" Business Sector peaked on August 2nd. It then fell below the 30-day WMA on August 4th, one day before it fell below the 40-day MA on the Standard graph. I consider a crossover below the 20-day MA as an alert and crossovers below the 30-day WMA and 40-day MA to be significant signals. As far as an early warning goes, the MACD graph clearly shows a loss of price momentum when it peaked on June 16th with Price at $27.07 per share. Note that the MACD was below its Signal Line on August 2nd when Price peaked again at $27.81 per share. So Price increased 80 cents, while the MACD Divergence fell from plus 0.19 to minus 0.01. In the Standard Graph, RT hit a peak of 1.11 on June 16th and closed at 1.10 on August 2nd. So it, too, went down while Price went up. But its warning message of an impending down movement in Price was not nearly as clear as that given by the MACD. Not to overstate the efficacy of the MACD, however, it often sends false warning signals during a strong uptrend. So, it pays to compare the MACD's behavior with that of RT.

The ProTrader Graph gave an unambiguous confirmation of the "Food" Sector's downturn; only three days after Price peaked on August 2nd, when the DPO fell below 1.00. This was a phenomenal signal. The Standard Graph didn't signal a confirmation until August 24th when RT finally went below 1.00. I suggest that you make a regular practice of looking at the ProTrader Graphs of all the Business Sectors. You'll find that it's really easy to identify price trend turning points and it's really amazing that this ProTrader Graph set-up works for everything, market timing with the VVC, Industry Groups, Indexes and individual stocks.

OK, so why is the "Food" sector getting clobbered? Let's close the graphs and drill down through the Industry Groups and into stocks to see where the problem lies. Right click on the row marked "Food." In the window which appears, click on View Industries in Business Sectors. Set the date back to 08/02/05 and click on "Quick Test." Select "Test All Items," and click OK. Sort the results by "% Price Change," ascending. The Food(Meat Products) Group has gone down 23.06% since August 2nd. Wow! Close "Quick Test" and Double Click on the row marked Food(Meat Products) to reveal all the stocks in this group. Click on "Quick Test," select "Test All Items," and click OK.

The worst stocks in this group are Cagle's Inc A and Seaboard Corp. Yahoo!Finance says Cagle's reported a 77% drop in quarterly earnings, due to falling poultry prices. On the other hand, Seaboard's price fell 509 bucks since August 2nd, despite a rise in second quarter sales and earnings. They're in the hog business. So I'm still in the dark. I could see where the stocks of beef purveyors would get hurt by high gasoline prices, but chicken and pork? It doesn't matter what I think. All I need to know is that the market's going down and these stocks are leading the parade. I may start shorting some restaurant stocks, since I can understand why they would be going down.

People often ask me if they have to have ProTrader. My answer is no, it's not absolutely necessary, but I wouldn't want to go without my ProTrader Graphs.