Like a train pulling into a station, the C/Dn signal arrived this morning, just as we expected. Of course, it won't be official unless the Price of the VectorVest Composite closes below yesterday's close, but it looks like a reasonably good bet that it will. Even if it doesn't, this is a good time to refresh our memories as to what "The Yellow Brick Road" is all about.
The Yellow Brick Road was introduced to our users in my essay of October 3, 2008. It was defined as a trading system which allows investors to make money in both up and down markets. I said it was easy to use, does not demand a lot of time and can be done at night when the market is closed.

The whole idea with the Yellow Brick Road is to buy high VST, "B" rated stocks on a C/Up signal, manage them according to a precise set of rules, go into cash; then sell-short low VST, "S" rated stocks on a C/Dn signal. The buy to go long Strategy was named "Easy Does It - C/Up" and the sell to go short Strategy was named "Easy Does It - C/Dn." Both are located in a UniSearch Group called, "Yellow Brick Road."

The rules for managing the long strategy were documented in VectorVest Views on September 26, 2008 and demonstrated at the VectorVest University on the same date. The short strategy was documented in the VectorVest Views on October 3, 2008 and demonstrated at the VectorVest University on the same date.

Three campaigns, two C/Up and one C/Dn, have been conducted since last October. These campaigns are documented in the VSA Model Portfolio Group of the Portfolio Manager Tool. The equity graph of the Yellow Brick Road - 2009 Portfolio shows that the first campaign, a C/Up, lost money while the latter two have produced substantial profits. A net gain of 26.13% is currently being shown for the portfolio.

Valuable experience was gained from these campaigns, so there are some things we will be doing that are different from those described last year. For example, we will not necessarily go short with the "Easy Does It -C/Dn" strategy, if and when we do go short. Five different strategies that could be used to go short with will be cited in the Strategy Section of today's Views so that our subscribers do not "move-the-market."

We will not go short on Monday, "come-hell-or-high-water." We will go short only if the market is going sharply lower as indicated by the major averages being down more than 1% each. The exit criteria we use to manage the portfolio will depend upon the strategy we go short with. If we go short with "Worst Performing Contra ETFs - C/Dn," for example, we will use the technique being employed in the "Riding-the-Wave" portfolio. In any case, we will describe whatever exit criteria we use.

Well, it looks like the bulls gave it a pretty good try to get into the green today, but they came up four cents short. So we now have a C/Dn signal and we'll be getting ready for the upcoming Yellow Brick Road - C/Dn Campaign.

WORST PERFORMING CONTRA ETFs - C/Dn.
Q. Why would anyone want to buy the ETFs found by the "Worst Performing Contra ETFs - C/Dn" Strategy when the market goes down?
A. Because these ETFs are the ones that are most likely to go up the most as stock prices fall.

Q. Why is that?
A. First of all, they are virtually certain to go up in price as stock prices go down because of the use of Put Options, Short positions and other contra mechanisms. Secondly, they are the ones to most likely go up the most because they have been beaten down in price the most.

Q. How do you know that?
A. Because they are sorted by RT*CI Asc. Low RT means that their prices have been clobbered. Low CI means that they have been getting clobbered for a long time.

Q. Yeah, but why would you want to buy these guys?
A. Well, it's really the same as Bottom-Fishing except it's the opposite because we're buying Contra ETFs when the market has peaked. If we want to "Buy Low and Sell High," we want to buy the Contra ETFs that have experienced the worst price performance. They will soar as the market goes down.

Q. Can you prove it to me?
A. Yes we can. Mr. Gordon White will do exactly that in this week's Strategy of the Week presentation. He will also reveal some amazing secrets on using Worst Performing Contra ETFs - C/Dn.