Last week I demonstrated how to use the Standard VectorVest graphs to analyze the directional price movements of Industry Groups and Business Sectors. This week, I'll do the same thing with a ProTrader graph set-up that is easier to interpret and, perhaps, even more effective in revealing forthcoming changes in price direction.

As I said last week, I make it a regular practice to look at the Industry Group and Business Sector Viewers. So let's start out again this week by clicking on Viewers in the Global Toolbar and selecting Sector Viewer. By golly, "Steel" is still ranked at the top of the list with the highest RT. As I did last week, let's set the date in the Drop Down Calendar to 08/02/05, the day the market peaked. Click on Quick Test in the Local Toolbar, select "Test All Items," and click on OK. Sort the %Price Change column in ascending order. "Steel" is still among the hardest-hit sectors with a price decrease of 3.89% from 08/02 through 08/25, but look at the "Food" sector with a decrease of 9.78%. Wow, I thought "Food" was a defensive sector and would hold up well in a downturn. Let's look at its graphs.

Close Quick Test, click on the row marked "Food," and click on Graph in the Local Toolbar. The Standard VectorVest Graph shows Price, Stop and a 40-day MA of Price in the upper portion and RT in the lower portion. I like to augment this graph by adding the 20-day MA of Price. The graph clearly shows that Price peaked on August 2nd, crossed below the 20-day MA on August 4th and fell below the 40-day MA on August 5th. Unfortunately, it appears that this graph didn't give any obvious warning signs of such a downturn in Price. So let's look at the ProTrader Graph.

The ProTrader Graph set-up I like to use is a 3-month, Daily graph that shows Price as a line, Envelopes, using the default 10 and 6.00 settings and a 30-day Weighted Moving Average, WMA. I also use the Moving Average Convergence Divergence, MACD, with the default settings of 9, 12, and 26, and finally, the Detrended Price Oscillator, DPO, with a setting of 20 Periods showing Area instead of a line. Many of you may recognize this graphical set-up as being similar to that often used to time the market.

Like the Standard Graph, this graph also shows that the Price of the "Food" Business Sector peaked on August 2nd. It then fell below the 30-day WMA on August 4th, one day before it fell below the 40-day MA on the Standard graph. I consider a crossover below the 20-day MA as an alert and crossovers below the 30-day WMA and 40-day MA to be significant signals. As far as an early warning goes, the MACD graph clearly shows a loss of price momentum when it peaked on June 16th with Price at $27.07 per share. Note that the MACD was below its Signal Line on August 2nd when Price peaked again at $27.81 per share. So Price increased 80 cents, while the MACD Divergence fell from plus 0.19 to minus 0.01. In the Standard Graph, RT hit a peak of 1.11 on June 16th and closed at 1.10 on August 2nd. So it, too, went down while Price went up. But its warning message of an impending down movement in Price was not nearly as clear as that given by the MACD. Not to overstate the efficacy of the MACD, however, it often sends false warning signals during a strong uptrend. So, it pays to compare the MACD's behavior with that of RT.

The ProTrader Graph gave an unambiguous confirmation of the "Food" Sector's downturn; only three days after Price peaked on August 2nd, when the DPO fell below 1.00. This was a phenomenal signal. The Standard Graph didn't signal a confirmation until August 24th when RT finally went below 1.00. I suggest that you make a regular practice of looking at the ProTrader Graphs of all the Business Sectors. You'll find that it's really easy to identify price trend turning points and it's really amazing that this ProTrader Graph set-up works for everything, market timing with the VVC, Industry Groups, Indexes and individual stocks.

OK, so why is the "Food" sector getting clobbered? Let's close the graphs and drill down through the Industry Groups and into stocks to see where the problem lies. Right click on the row marked "Food." In the window which appears, click on View Industries in Business Sectors. Set the date back to 08/02/05 and click on "Quick Test." Select "Test All Items," and click OK. Sort the results by "% Price Change," ascending. The Food(Meat Products) Group has gone down 23.06% since August 2nd. Wow! Close "Quick Test" and Double Click on the row marked Food(Meat Products) to reveal all the stocks in this group. Click on "Quick Test," select "Test All Items," and click OK.

The worst stocks in this group are Cagle's Inc A and Seaboard Corp. Yahoo!Finance says Cagle's reported a 77% drop in quarterly earnings, due to falling poultry prices. On the other hand, Seaboard's price fell 509 bucks since August 2nd, despite a rise in second quarter sales and earnings. They're in the hog business. So I'm still in the dark. I could see where the stocks of beef purveyors would get hurt by high gasoline prices, but chicken and pork? It doesn't matter what I think. All I need to know is that the market's going down and these stocks are leading the parade. I may start shorting some restaurant stocks, since I can understand why they would be going down.

People often ask me if they have to have ProTrader. My answer is no, it's not absolutely necessary, but I wouldn't want to go without my ProTrader Graphs.

Last week we touched upon the idea of buying and holding stocks in rising Industry Groups and Business Sectors and selling those in falling Groups and Sectors. I did not get into this subject by accident. I did it because it is very important to examine Industry Group and Business Sector rotation when the market peaks, as it did two weeks ago, (August 2nd, to be exact).

I make it a regular practice of tracking the trends of Industry Groups and Business Sectors. I usually start out by clicking on Viewers in the Global Toolbar and selecting Sector Viewer. As of yesterday, one would see that "Steel" had the highest RT and was ranked at the top of the list. Sounds good, but please note that the Percent Price Change, %PRC, from the previous day was a nasty minus 2.29%. If one sets the date in the Drop Down Calendar to 08/02/05, clicks on Quick Test, selects "Test All Items," and clicks on OK, one would see that the average Price of every Business Sector has gone down since August 2nd. By sorting the %Price Change column in ascending order, one would see that "Steel" was among Sectors hit hardest since the market peaked. This is not unusual...the higher they fly, the faster they fall. So why is the RT still so high?

RT is a wonderful indicator and it allows us to see and compare price trends with a single click of the mouse. But it does not reveal the price history or day-to-day price changes that are also important in assessing a stock's price behavior and likely direction. Of course, one can click on History in the Local Toolbar and see the daily closing prices and the Percent Price Change, %PRC, of a stock, Industry Group or Business Sector, but this does not deliver the information as well as you would get it from a graph.

As an example, let's look at a graph of the Steel sector by setting the date in Sector Viewer back to 08/18/05 and clicking on Graph in the Local Toolbar. The Standard VectorVest Graph shows Price, Stop and a 40-day MA of Price in the upper portion and RT in the lower portion. Let's add a 20-day MA of Price. Note that the average price of the Steel Sector peaked on March 4, 2005, just before the most recent downturn. Four days later, Price broke below its 20-day MA, and then fell below its 40-day MA on the March 23rd. RT fell below 1.00 on March 28th, confirming the downturn.

The average Price of the Steel Business Sector finally hit bottom on May 13th. By that time, RT had already hit bottom on April 15th and was making a series of higher lows. RT was indicating that the downturn had dissipated. Price crossed above and below its 20-day MA shortly thereafter and finally rose above the 40-day MA on June 1st. RT crossed above 1.00 on June 16th, confirming the upturn. Most recently, the average Price of the Steel Business Sector peaked on August 11th, and fell below its 20-day MA on August 17th. RT had already peaked at 1.49 on August 2nd and was down to 1.28 as of yesterday. It will cross below 1.00 just about the same time as Price breaks below its 40-day MA.

What we have here is a situation in which the RT of the Steel Business Sector is still high but falling rapidly. It wouldn't surprise me if it did a repeat performance of last spring's downturn. If I owned any stocks in the Steel Business Sector, I would sell them. I could have come to conclusions such as this in other ways, but I have more confidence after Analyzing Graphs of Industry Groups and Business Sectors.

P.S. If you're looking at your stocks from a WatchList and you want to see what its Industry Group or Business Sector is doing, simply right click on that stock's row; then click on View Industry Graph or View Business Sector Graph.

P.P.S. Next week I'll write about a ProTrader graphical set-up that also does an excellent job of pinpointing Industry Group and Business Sector trend changes.

Want to improve your stock picking skills and get better at knowing when to buy or sell a stock? Then start using Industry Group and Business Sector RT Analysis.

There's an old saying that "Birds of a feather flock together." And so it is with stocks. Stocks of companies in the same business have similar characteristics and experience the same market forces as their direct competitors. Therefore, the prices of stocks in common industries or businesses tend to rise and fall together. Of course, some stocks will perform better than others, but logic says one should own stocks in rising Industry Groups and Business Sectors and sell those in falling Industry Groups and Business Sectors. This is extraordinarily easy to do with VectorVest, since we rank every Industry Group and Business Sector by Relative Timing, (RT).

For example, if one opens Stock Viewer, one would see that as of yesterday, Chaparral Resources, (CHAR), was ranked highest by VST-Vector. Its Relative Timing, (RT), rating was 2.00, which means that its stock price was soaring. That's great, but was it a loner or was it part of a hot Industry Group? Notice that data on the "Petroleum (U S Explr\Prod)" Industry Group is shown at the bottom of your screen. It shows that the average RT of all the stocks in this Industry Group was 1.43, which is very good. If one were to scroll over to the right, one would see that the RT Ranking of this Industry Group was 11. This means that 10 Industry Groups had higher average RT's and 179 Industry Groups had lower average RT's. Clearly, CHAR and its entire Industry Group were flying high.

Now let's click on the VST header bar in Stock Viewer and sort all the stocks in ascending order of VST. Proxim Inc CLA, (PROXQ), was at the top of the list and its RT was only 0.03, meaning its Price has been destroyed. Incidentally, the "Q" in the ticker symbol means that this company is bankrupt. Nevertheless, we can see that it is in the "Telecomm (Equipment)" Industry Group. The Industry Group's average RT is 0.93 and its RT Ranking is 156. Not good.

Now it's time to take a little quiz. Hopefully, you have a WatchList of your stocks. Sort them by RT descending. Then write down whether or not its Industry Group RT is above or below 1.00. Grade yourself to see how many you got right. If you don't know whether the Industry Group and Business Sector RT's of each stock are above or below 1.00, you need to do more work with Industry Group and Business Sector RT Analysis.

P.S. I'll write more about Industry Groups and Business Sectors next week.

VectorVest is pleased to announce the official opening of The VectorVest University. Classes are available immediately via the internet to all VectorVest subscribers at no charge. Simply log on to http://www.vectorvest.com/vvuniversity and register for the course(s) of your choice.

The current curriculum is comprised of the following six classes:
1. Getting Started,
2. Finding the Right Stocks,
3. Testing Your Ideas,
4. Gaining the Traders Edge,
5. Putting it All Together, and
6. Introduction to the Simulator.

These classes typically last about 45 minutes and are given in both a live-format and in pre-recorded presentations. Each live-format class is given three times a week at 10:00AM, 2:00PM and 9:00PM (Eastern Time). The live-format classes require registration, but have the advantage of allowing you to ask questions. The pre-recorded classes are available 24/7 and can be viewed over and over again. We have been giving these classes for several weeks now and the feedback has been outstanding.

While we are very pleased with the success of the VV University so far, we will continue to travel about the country, giving live Product Reviews, Seminars, Options and Technical Analysis Courses and Executive Premier Workshops. Our new 4-CD Seminar Training Set is also available for those who wish to receive the in-depth presentations given at our Two-Day Seminars.

We also invite you to ask about our new "one-on-one" training service. It allows you to specify the training you wish to receive and one of our experts will work with you until you have it down pat. The charge is only $95.00 per hour. For more information, please call Sales at 1-888-658-7638.

Using VectorVest can be as easy as finger pecking a tune on a piano or it can be as complex as performing a Beethoven concerto. You decide how good you want to become and we will help you achieve your goal. So give it a try. Attend The VectorVest University.

"EXTREMELY OVERBOUGHT."
As you may recall, I was skeptical about the market extending its rally through July, but it did based upon strong earnings reports. Last Friday, however, I warned that the market was overbought, profit taking was increasing and Prudent Investors should take some profits and be careful about opening new positions. On Tuesday, I stated the market was "extremely overbought," and again advised caution. These statements elicited a number of questions as to what I meant by "overbought" and how did I know the market was "extremely overbought."

"Overbought" is nothing more than technical jargon signifying that stock prices have gotten ahead of themselves and are due for a pullback. How did I know this? No, I didn't hear it on CNBC. I saw it on our Market Timing Graph. First of all, I began to get leery when the MTI got to 1.57 on July 12th and failed to push higher for the next several weeks. This told me that the rally was getting tired and prices were more likely to go down than up. Secondly, I looked at the Buy/Sell Ratio, BSR. The BSR hit a peak of 3.87 on July 20th. After that it moved to lower highs even though the Price of the VectorVest Composite continued to go higher. This also told me the rally was losing steam.

Finally, I looked at the percent Sells as shown in the BSH% graphic. I have to admit I did this as a result of receiving an email from one of our subscribers. Although I didn't do what he had done, I observed that the market usually goes down shortly after the percent Sells hits or goes below 10%. The percent sells hit 10% on July 18, 19, 20, 25, 26, and August 1. Again, the market didn't have the oomph to push the Percent of Sells below 10%. On August 2nd, the percent Sells went up to 11% even though the Price of the VVC peaked and the percent Buys went up. When both the percent Sells and Buys go up on the same day, it means that traders were selling losers and chasing winners. This usually happens when the market is "Extremely Overbought."