On April 29th I wrote an essay on bottom fishing and I have written six essays on the subject since then. I didn't write that April 29th essay by accident. I had already noted a week earlier that the market was drastically oversold as indicated by an extremely low (<0.20) Buy/Sell Ratio. Clearly, it was a time to prepare to go bottom fishing. Three trading days later, May 4th, we got a Green Light from the Color Guard and it was time to buy stocks.

In the essay cited above, I described a method of finding high RS stocks at bargain prices and also suggested that Prudent investors consider using "Biggest Bargains" and "Turnaround Candidates," found in the Strategies - Prudent Group of UniSearch. The six essays written over the succeeding weeks addressed the use of 26-week lows, recommendation sequences, Industry Groups, hot growth stocks, RT crossovers and MA crossovers. Had you implemented any of these strategies, you would have made money.

One of the interesting things I observed in working with these strategies was that the stocks they find do not fare well when the market starts going down. I thought about it and, in retrospect, this makes sense. The stocks found by bottom fishing strategies were beaten down in price for a reason. What ever that reason was is not important. Bottom fishing is a matter of dealing with damaged goods. These stocks don't have the support to fight a market trend. Since it appears that the market has topped, our bottom fishing days should be over for now.

Now is the time to be thinking about strategies that are mirror images of bottom fishing strategies. Instead of finding stocks to buy that are coming off of recent lows we have to be looking for stocks to sell-short that are falling from recent highs. As with the bottom fishing strategies, there are a lot of ways to do this with VectorVest. In this week's "Strategy of the Week," we're illustrating a search in which we look at Industry Groups whose Prices have gone up for three consecutive weeks and we sell-short the stocks ranked highest by RT. I know this sounds counter intuitive, but so was bottom fishing.

So put your fishing rod away and grab your shot-gun. We're going from Bottom fishing to Duck-Hunting.

Moving average (MA) crossovers are the oldest, simplest and most commonly used searches to identify a stock's price trend. An up signal is given when the short-term price MA crosses above the long-term price MA. A down signal is given when the short-term price MA crosses below the long-term price MA. Up signals generated by MA crossovers are ideally suited for bottom fishing purposes and may be used by all types of investors.

Conservative and Prudent Investors favor MA crossovers with longer look-back periods because these signals are more reliable. Aggressive Investors and Traders prefer MA crossovers with shorter look-back periods because they are faster. Other than indicating a stock's price history and its trend, MA crossovers say nothing about a stock. Therefore, no one should ever buy a stock just because it got an up signal from an MA crossover. Moreover, it is wise, if not necessary, to use MA crossover searches in conjunction with other information sources. This is where VectorVest comes in. VectorVest ProGraphics analyzes, sorts and ranks over 8,000 stocks every day by a variety of indicators and parameters, and VectorVest ProTrader, our technical analysis software, allows investors to customize and search for MA crossovers to their specifications. Together, VectorVest ProGraphics and VectorVest ProTrader provide everything an investor needs to go bottom fishing using MA crossovers.

This week's "Strategy of the Week" illustrates the use of a 10x30 Day MA Crossover search. Note that the search specifies finding stocks with Price >= $1.00, AvgVol >= 100,000 shares per day with Rec <> "S". It also specifies that both MAs are moving up when the crossover is made. (This requirement is OK for shorter term MAs but not suggested when one is using a look-back period greater than 50 days.) Finally, a somewhat exotic sort, VST*CI/ActualPrice, is used to find candidates which are likely to explode in price.

While MA crossovers are easy to use, one should recognize that they are date specific. In other words, the search cited above will find only those crossovers occurring on the date of the search. You should also be aware that a 10x30 Day MA crossover search will not give the same results as a 2x6 Week MA crossover search because the moving averages are actually different. For example, I ran the 10x30 Day search on August 20, 2004 and found 91 stocks. The 2x6 Week version of the same search found 375 stocks. The reason for this difference is that the former search uses 10 and 30 daily data points and the latter search uses 2 and 6 Friday data points. Incidentally, I got better testing results with the daily search.

Before leaving this subject, it's worth noting that MA crossovers play an important role in the VectorVest system. VectorVest Stop-Prices are driven from 13-week moving averages. If one thinks of Price as a one-day MA, we then say that any stock whose Price crosses above the Stop-Price gets a "H" or "B" rating. When Price crosses below Stop-Price, the stock gets an "S" rating. When we specified that the above cited search find stocks with Rec <> "S," we put the Price, Stop-Price MA crossover to work.

A ramification of this relationship was used in my essay on "Bottom Fishing Using Recommendation Sequences," written on May 20, 2005. In those searches we looked for stocks whose recommendation sequences went from "S" to "B" in a variety of sequences. In all cases, however, we were looking for stocks whose Prices had crossed from below to above Stop-Price. It was just another way to go Bottom Fishing Using MA Crossovers.

P.S. If you do not have VectorVest ProTrader, please call 1-888-658-7638 to get a FREE 30-Day Trial.

One of the most frequently asked questions we receive is, "How can I find those top-rated, high VST-Vector stocks before they have moved up so far?" The answer can be found by looking at Standard graphs of these stocks. As of Thursday, June 9, Nutri Systems, NSI, was the top stock ranked by VST. Its graph shows that RT went from 0.84 on 08/20/04 to 1.10 on 08/23/04 at a Price of $1.85 per share. Its Price peaked four days later at $1.98; then moved lower. Subsequently, it got an "S" signal at $1.56 with its RT at 0.91. Shortly thereafter, RT crossed above 1.00 again to 1.05 on 10/06/04. Price exploded to $1.89 the next day, and NSI was on its way to the top.

You may look at as many of these graphs as you wish. Invariably, the big price run-ups go back to a time when RT was below 1.00. In some cases, like Urban Outfitters, you may have to go back a couple of years to see the critical RT move, but it's pretty easy to see when it happens. Best of all, we find these moves with a click of a mouse button by using Trends in the UniSearch Tool.

I tested a lot of different combinations of RT crossover sequences to see how well they worked. The one I like the best is illustrated in this week's "Strategy of the Week." It specifies that the stock have three consecutive weeks of RT < 1.0; then one week of RT > 1.0. In doing this work, I found that it was extremely difficult to develop a strategy that gave outstanding results over the last seventeen months. Nevertheless, I could find many big winners by looking at the VectorVest graphs. So I have this suggestion: Learn how to cherry pick your selections using VectorVest graphs.

On December 3, 2004, I wrote an essay called VectorVest Simple. In this essay, I explained how I like to cherry pick stocks using graphs. Basically, I prefer to buy stocks with smooth, steady price patterns. I shy away from stocks with erratic, disjointed price movements. Now let's suppose you ran this week's "Strategy of the Week" as of 08/27/04. This is the Friday after NSI had the RT crossover cited above. (I run this strategy only on Fridays since it entails a week-to-week Trend search.) Highlight the top 10 stocks and click on Graph in the Local Toolbar. Create a Custom Graph extending from 01/03/03 to 08/27/04. This allows us to see only what we would have seen as of 08/27/04. Well, let's see what we have:

1. The top stock, SELA, has been in the database only a month or so, so there's no way I would have bought it.
2. The next stock, HOM, looks like its coming out of a long downturn. It's more volatile than I like to see, but I'll keep an eye on it.
3. SOTK, the next stock, appears to have consolidated after a rally. It, too, is worth watching.
4. The following stock, RGN, appears to be treading water, but its RT has been hitting higher lows. It doesn't cost anything to watch it too.
5. GIGM has had two false RT crossovers in the last six months. Is this another one? Could be, but I'll watch it also.
6. NSI, appears to be making a serious up move after a long consolidation. Its RT hit a low of 0.13 on 08/05/04, then soared to 1.35 on the 08/27/04. It looks like my best candidate so far.
7. The next stock, MRY, is not perfect, but it is also coming out of a consolidation. So let's see what it does.
8. NNPP, is too erratic for me. Does it ever have two days in the same direction?
9. SWB is worse than NNPP.
10. All I have to say for BDSI stock is, "Uga uga, uga, boo boo uga."

So our quick inspection shows that we would have eliminated SELA, NNPP, SWB and BDSI from the candidate list. Quick Test shows that over the next three months nine of the ten stocks went up for an average gain of 46.07%. SELA was the only loser. From 08/27/04 to 06/03/05 nine of the ten stocks went up again, gaining an average of 99.48%. HOM was the only loser and NSI was the biggest winner with a gain of 556.57%. Had I gotten into it based upon the 08/23/04 move, I probably would have gotten out of it when it got the sell signal on 09/16/04. But I would have caught its big up move. Here's how.

Let's face it. It's awful hard to make a purchase decision when you're looking at the hard right side of a graph. So what I do is run searches back in time. For example, had I run this RT crossover search on 09/27/04, 10/27/04 and 11/27/04 using the 08/27/04 search date, I could easily keep track of what these stocks were doing. I would have seen that NSI tanked as of 09/27/04, but took off after that.

You may think all of this is a lot of work, but I don't. Finding winners by bottom fishing is fun...especially Bottom Fishing Using RT Crossovers.

PS. I actually did buy NSI under $4.00, but I used Rocket Boppers to find it.