Two weeks ago, I wrote about the Market Timing Graph. My primary purposes at that time were to discuss the reversal of the "two-week" signal given by the Price of the VectorVest Composite, VVC, and to show how the rally could easily revert to a downturn. Today I would like to update my analysis of the Market Timing Graph, explain why I'm not crazy about this market and show you how to recognize the best times to buy stocks.

Let's take another look at the Market Timing Graph. You may do this by clicking on Graphs on the Main Menu Bar and selecting Market Timing Graph, Standard. Set the period to 1-year and the frequency to Weekly. Please note that starting from 01/27/06 to today, the Price of the VVC embarked upon a two-week down move, a two-week up move; then a two-week down move. In 15 years of studying this graph, I have never seen a "double-reversal" such as this before. Generally, a reversal happens about once a year and usually reflects an uncertain, wishy-washy market. This market is not only uncertain, but manic-depressive, going wildly up or down on the slightest bit of news. If the people think that The Fed is going to stop raising interest rates because of today's jobs data, they're delusional.

Why am I not crazy about this market? Not only do the two-week and intra-day reversals make it almost impossible to make money, but the chances of a meaningful, sustainable rally are low. The Price of the VVC is up 98% from its October 9, 2002 close and the MTI, BSR and RT have all peaked on or shortly before February 1st. Although the market has lost its upward momentum, the Bulls have not capitulated just yet.

So what do we do now? Let's change the setting on the Market Timing Graph to the All Weekly mode. Notice how the Price of the VVC has gone up and down over the last ten years. Obviously, the best time to buy stocks is at the bottom of each of the major downturns shown on the graph. Of course it's impossible to nail the exact bottom of a downturn and I have never claimed to have done so. But we can sense when a bottom is near and when the market has begun to rally. I've shown how to do this before, but it won't hurt to do it again.

Click the Buy/Sell Ratio button on the graph. Notice that it goes up and down in perfect harmony with the Price of the VVC. Now click the dateline on the oldest, farthest to the left, low point on the graph, i.e., 07/26/96. Notice that the Buy/Sell Ratio, BSR, was 0.11. Click on the next oldest low point on 04/25/97 and see that the BSR was at 0.15. Do this on other low points and you will see that most of the time the BSR was less than 0.20. Therefore, a good way to sense a market bottom is when the BSR has gone below 0.20.

Is that signal good enough to cause me to start buying stocks? No it isn't. I want to see evidence of a rebound before jumping back into the market. Even then, I'd prefer to see an explosive rebound such as those which occurred 05/02/97, 10/16/98 and 09/28/01. A really good time, then, to buy stocks is after the BSR has gone below 0.20 and is followed by an explosive rally. This is just the opposite of what we have today. So be patient. The BSR will go below 0.20 eventually and we'll have an explosive rally after that. This will create a great buying opportunity, and it will be well Worth Waiting For.

RIMM STRADDLE/STRANGLE UPDATE.
The beginning of this story goes back to my essay of February 10, 2006 when I first got into this trade. Basically, it was a great idea and I made some money. But my execution was poor. Not knowing when a real decision was going to be made, I pulled the trigger too fast on my long Calls. Nevertheless, I like the concept and will be looking to do more.