Every now and then someone walks into my office with a really neat strategy. This is exactly what Rob McCrady did a few weeks ago. His strategy is called "Use the Rules."

Rob is a Product Development Engineer here at VectorVest and was largely responsible for automating our Daily Color Guard analysis. Anyone who has read the Special Report on the Color Guard, which can be located by clicking on Research in the Main Tool Bar, clicking on Special Reports; then clicking on Color Guard, knows that the whole Color Guard process is driven by rules, rules and more rules.

The underlying thrust of these rules is that of converting the direction of our market timing indicators into a color code. For example, if on any given day the Price of the VectorVest Composite goes up from that same day of the previous week, the event is noted. If the Price of the VectorVest Composite also goes up from the previous trading day, we say that the weekly "up" move was confirmed. The color assigned to this action depends upon the color the indicator had the prior week. If the color on the prior week was red, the new color will be designated as yellow. If the color on the prior week was yellow, the new color will be designated as green. If the weekly movement of an indicator was not confirmed by its daily action, the color will be designated as yellow.

You can see there's a lot of bookkeeping that needs to be done every day to produce the Color Guard Report. So Rob wrote a small program that does this work with the click of a mouse button. In doing so, he committed all the Color Guard rules to memory. Then the idea came of applying these rules to selecting stocks. Bingo. A new strategy was born.

I've worked with this strategy a bit and found it to be quite interesting. It finds an unusual mix of stocks, so I still want to do more work with it. I also want to see if the basic idea of the search applies to Industry Groups and Business Sectors as well as to stocks. In the meantime, you may wish to also work with it. So it's being featured as this week's "Strategy of the Week." Take a look at it. Learn how you can Use the Rules.

THE CANARY IS GASPING FOR AIR.
On Wednesday, the first day of trading U.S. stocks, the market opened sharply to the upside only to be stifled by the minutes from the Federal Reserve's December FOMC meeting. These minutes showed that policy makers are still more concerned about controlling inflation than they are about a weaker economy. Therefore, there is little thought of lowering interest rates at this time. In fact, the Fed is still pondering whether or not they should raise interest rates. This is anathema to investor's ears.

Many observers use the first few days of January trading as an early indicator of what the market will do for the entire year. Forget about it. It just isn't that good. But this is not to say the market is doing well, because it's not. One month ago, I said the VectorVest Buy/Sell Ratio, BSR, the Canary, would "almost certainly go below 1.00 before it goes above 3.00 again." In other words, we will experience a Confirmed downturn before we see another grand rally. Right now it appears to be going that way and The Canary is Gasping for Air.