I don't believe in buying stocks that are going down in price. A lot of people do, however, and it's a fact we have to acknowledge. It seems that more and more investors, who may have missed the rally from the March 9th bottom, have been waiting for prices to fall so they can get into the market more cheaply. I wrote about this in last Friday's "Strategy" section of the Views and it's a common practice called, "buying the dips."

It also seems there is still a lot of fear in the market, so traders have been quick to sell, nailing down small profits. The net result has been an up and down market, the likes of which we have never seen before. Specifically, the Price of the VectorVest Composite went up two weeks then down two weeks in five consecutive waves on a Friday-to-Friday basis since September 4, 2009. In the meantime, the Buy to Sell Ratio, BSR, went from above 1.00 to below 1.00, giving a C/Dn signal on Wednesday, October 28th; then, on the current up wave, the BSR went from below 1.00 to above 1.00 on Wednesday, November 11th, giving a C/Up signal. This event produced the third reversal of a confirmed signal so far this year...another first.

As you might expect, I have received numerous phone calls and emails complimenting me on this extraordinary feat and offering helpful advice. The only thing I can say is that we call it the way we see it. If the market goes up we report it, if it goes down we report it. Our Market Timing System has served us well over the years and I'm not going to ditch it now. But I am going to use it more wisely.

I've known for a long time (see my essays of 01/04/08, 01/11/08 and 01/18/08), that the Pros "sell the rallies" in a Bear market and "buy the dips" in a Bull market. Even though I think we're in a Bear market rally, most investors believe we're in a Bull market, so they're "buying the dips." This means that it won't pay to sell-short when these guys are waiting to buy stocks every time they go down in price. You can't fight market psychology. I tried it during the 2003 - 2007 Bull run and it was largely unsuccessful. OK, so if we're going to "buy the dips," when should we do it and what Strategies should we use?

In my essay, "When To Go Long," dated January 4, 2008, I said, "An Aggressive Investor would wait until the Primary Wave gives an Up signal." This guidance is just as good today as it was then. So what Strategies should we use? I covered this subject on January 11, 2008, but a lot has changed since then. We have some great new Strategies now and the VectorVest RealTime Derby keeps us abreast of the Strategies that are cooking at the moment. Even so I wanted to put myself into the place of an investor who was actually "buying the dips." What would he or she buy?

I concluded that most of these investors would be "Value Investors," looking for beaten-down bargains. So I began to play with some of our Bottom-Fishing Strategies. I got some interesting results; then I asked Dan Misch, one of our Product Support Specialists, to dig into the problem. He got some stunning results.

Visit the VectorVest University to see what Dan found in this week's "Strategy of the Week," "Buying the Dips."