I received an email from a subscriber yesterday which raises some very interesting issues. In part, the email says, "You have tremendous discipline and confidence to stick with short sales in the model portfolio; everything you say is right on the money. Had your critics waited a few days they would have changed their tunes.

I noticed that the stock market seems to deflate every few days with the high flying stocks giving back much of their gains. I think this is hedge funds taking profits and maybe manipulating options.

I'm sure there was funny business on February 27. Stop loss orders placed with my broker hurt me a lot. Stocks opened below the stop, my orders executed then the price rose - all in a few minutes. This sell-off did not correspond to options expiration, but I think some hedge funds took advantage of a bad day when stocks were down. Spook the market (drive price down) then buy shares cheap from buyers who panic."

Yes, indeed! Ever since the market flattened-out in December, money has been rotating out of winners and going into laggards. High flyers have been getting pasted, but that's nothing new. Unfortunately, it's a tough market in which to make money if you're a momentum player. Our Model Portfolio went essentially nowhere in the last quarter of last year even though we ended-up with a 60% gain. It was weird.

Even weirder is the choppiness of the market. There once was a time when a down week in the Price of the VectorVest Composite was a noteworthy event. Not anymore. Just look at a four year display of the Market Timing Graph in the weekly mode. The longest string of consecutive up weeks was six, and that happened in 2005. In the 31-week rally from July 21, 2006 to February 23, 2007, there was only one five-week string of higher prices. In the first ten weeks of the rally, there was a string of four consecutive up and down weeks. So what's going on?

First of all, more and more trades are being made with sophisticated computer systems that include technical analysis models or derivations thereof. These systems take profits in short spurts and buy at support levels. I have read that these systems, including program trading, now account for more than 50% of all trading. But you can't blame only the hedge funds for what's going on. The big brokerage firms and investment banks led the way with program trading many years ago and they continue to be the major players in system trading. They make hundreds of millions of dollars a day trading stocks, so they're not going to stop.

As far as placing stops with a broker, I stopped doing that years ago. They only use the information to pick your pocket. Another problem I see is that of big price movements before the market opens. More often than not, the bulk of a day's price change occurs before the open. How can you make money under those conditions? The answer is that we have to do a better job of calling our shots. This means we need to be patient when we need to be and act quickly when we should. Right now, we're waiting for the market to come to us. We're not going to chase it up and down every few days. It's called Survival 101 in A Changing Market.