About five years ago, October 04, 2002 to be exact, I wrote an essay entitled, "Tomorrow's Paper." It was intended to illustrate how Industry Group performance showed current market trends and possibly project future trends. At that time it appeared that the weakening price performance of housing stocks was projecting rough times for home builders. Because of plummeting interest rates and a torrent of liquidity, the housing market expanded for the next 33 months instead of contracting. Obviously, I was way too early. The Price of the Building(Residential\Comml) Industry Group actually peaked two years ago, on July 28, 2005.

For me, it was very gratifying to see Mr. Matt Blackman use this same technique to write two prescient articles about the housing market. The first, entitled, "To Catch a Falling Knife, was cited in my March 23, 2007 essay called "The Homebuilders Demise." The second article, which addresses the issue of mortgage lenders, is now appearing in the August 2007 issue of Stocks & Commodities. In both articles, Mr. Blackman used VectorVest graphs of stocks and Industry Groups to conduct his brilliant analyses. Not only did he study Price performance, he also analyzed trends of Earnings Per Share, Earnings Growth Rate, and Growth to P/E ratios. In noting the deterioration of Countrywide Financial's earnings forecasts as given by Vectorvest, Mr. Blackman wrote, "Expect more downdrafts to this and other lenders as the subprime storm widens. A perfect storm in the making?"

It has been quite a while since I have written about using Industry Groups and Business Sectors, but a regular examination of their price performance, both by RT rank and graphical analysis should be part of your routine for picking stocks to buy as well as for selling short. I waited a long time to make money by shorting homebuilders and I've been doing it with a vengeance lately. That's the beauty of reading Tomorrow's Paper.

P.S. Today's "Strategy of the Week" will illustrate some of the techniques we use in analyzing Industry Groups. Don't miss it!