We had a great show here in Las Vegas and I especially want to thank those subscribers who visited our booth and showed their support. While it is quite normal for this to happen, the number of you who appeared and the sincerity of your voluntary testimonials are especially appreciated. Thanks again for your help.

Show attendees who were new to VectorVest were amazed at the speed with which we went into cash and subsequently went short. Once we explained how our market timing system works and how the RT, BSR and MTI were losing momentum since late January, early February, they all said they wished they had known about VectorVest sooner. Of course, they asked a lot of questions such as, "How far down will this pull-back go and how long will it last?" No one knows for sure, but we can get an idea from the previous behavior of the BSR. I wrote about this key indicator on October 21, 2005, and it suggests to me that this downturn will not end until the BSR consolidates below 0.20. You can see how reliable it has been in the past by studying the Market Timing Graph.

I am not shocked by the severity of the sell-off so far. After all, the market had been moving higher for over three years and it had assumed some of the characteristics of the early 2000 market, i.e., the BSR was falling while the Price of the VectorVest Composite was rising. This phenomenon indicated that investors were focusing on fewer and fewer stocks and pushing prices higher and higher, creating a dangerous situation. In early 2000, the top Business Sectors ranked by RT included Electronic, Telecomm, Software, Drug, and Internet. As of May 10, 2006 the top Sectors included Steel, Mining, Metal Products, Petroleum and Energy. High flying stocks in the top ranked Business Sectors got demolished in 2000 and they also have so far in the current drawdown.

A big difference between 2000 and now is that the market was terribly overvalued in 2000 and now it is fairly valued. So I see this drawdown as a correction, not the beginning of a bear market. Besides, we have to see evidence of falling earnings to engage a bear market scenario. We will inform you when this happens. However, I am very concerned about the falling dollar. A weak dollar will lead to higher inflation as sure as night follows day. A barrel of crude oil, for example, would now cost closer to $50 instead of $70 had the dollar not fallen over the last four years. Moreover, the Fed is less likely to stop raising interest rates as the dollar falls in value.

On a lighter note, I saw that the casinos have been replacing slot machines with all types of gaming tables. Other people, as well as I, obviously want to be involved when losing their money. Finally, the cost of doing Vegas has gone up. It's getting hard to find a $5 blackjack table and food and beverage prices have shot upward. Nevertheless, I still love this place. That's my Report From Vegas.

NO MO MOJO.
We went short with "Sector Peak - Short" strategy on Wednesday. While it worked out well yesterday, I must admit that I am very uncomfortable shorting high VST stocks. These guys can skyrocket at any time and are rebounding today. So I have created a strategy for finding high momentum stocks of lower quality. It's called "No Mo MoJo." Log onto The VectorVest University to see how it works.