With the up and down price gyrations of the market over the last two months, it's a good time to step back and take a hard look at our Market Timing Graph. You may open this graph by clicking on Graphs in the Main Menu Bar and selecting Market Timing Graph, Standard. The closing Price of the VectorVest Composite, V V C, which is the cornerstone of our market timing system, is shown in the upper portion of the graph. Our Market Timing Indicator, MTI, which provides insight on the price behavior of the market, is shown in the lower portion of the graph.

The first thing to note is that the Price of the V V C closed at its highest point on February 1, 2006. Only three days earlier, it had closed above its March 10, 2000 all-time high of $26.46. This was a notable event because the March 10, 2000 high represented a major resistance level and closing above it could have lead to substantially higher highs. But it did not. The Price of the V V C plunged from its February 1st high of $26.64 to a low of $25.98 on February 13th. During this period, the Primary Wave, which reflects the week-to-week price movement of the V V C, went from Up to Dn and on February 10th; the Price of the V V C marked its second consecutive week-to-week down move, giving a preliminary signal of a sustainable downturn.

The two-week signal is not something that can be ignored because it works most of the time. In this case it did not work. The market began to move higher on February 14th and the Primary Wave reverted to Up. The Price of the V V C rose for the second consecutive week on February 21st, signaling a sustainable uptrend. Sure enough, the Price of the V V C went down yesterday, but closed up 9 cents today. At today's close of $26.65 per share, the Price of the V V C is 1 cent above its February 1st high of $26.64 and 16 cents above last Friday's close of $26.49. An upward price movement will extend the rally or a small down move could flip the Primary Wave back to a Dn signal. Net, net, this is a market that is trending higher but can easily start going down again.

Why did I say that? First of all, the Price of the V V C is forming a double top, which is a bearish signal. Secondly, the paths of the Price of the V V C and MTI have been diverging in a bearish fashion, i.e., the Price of the V V C has moved above to its February 1st high while the MTI has not. Thirdly, this last rally has been shorter and weaker than the previous two rallies in the upturn from 10/21/05. An important price level to watch is shown by the 40-Day Moving Average. Notice that the Price of the V V C approached it twice before, then bounced higher. Will it happen again? I don't think so, but the only way to know for sure is to keep looking at The Market Timing Graph.

THE RIMM STRADDLE/STRANGLE SWAP.
As noted two weeks ago, see my essay of 02/10/06, I sold 10 Feb 70 Calls and 10 Feb 70 Puts, the Straddle, for a credit of $3,550 and bought 10 Mar 75 Calls and 10 Mar 65 Puts, the Strangle, at a cost of $5,700. My net cost was $2,150. Last week I bought the Feb straddle back for a profit of $1,322.50. Today I sold my 10 Mar 75 Calls for a profit of $1,490.00. Right now I've booked a gain of $662.50 and still own the 10 Mar 65 Puts which are priced at a $1.00 per share.

The judge ruled today and did not shut RIMM down, but he left a lot of things yet to be done. RIMM's stock moved higher by as much as 8+ dollars/share, but didn't stay there very long. RIMM is not out of the woods yet, so I hung on to my puts.

One of the nice things about this business is that you get to meet a lot of great people. One of them is Mr. Albert Gordon of Los Angeles, California.

Albert was 75 years old when he first subscribed to VectorVest in January, 1997. He was a tough, old guy, and bluntly told me that he wasn't going to use VectorVest if it didn't help him make money. The good news is that he made money consistently and continued his subscription for over eight years. Last summer he called and said he would have to discontinue using VectorVest because his eyesight had deteriorated to the point where he could no longer use a computer. Before he quit, however, he wanted to tell us what he was doing.

I knew it was going to be good because Albert was an avid researcher and had written to me many times in the past. This time, however, he wanted to train me in the system he was using to make money. I didn't feel I had the time to do this, so we agreed that he would train one of our best researchers, Keeley Murphy.

Albert's system is basically one of buying Call options on high VST-Vector stocks. He bought Call options because he didn't like to tie up a lot of money in any single stock and neither did he want to lose a lot of money on any single stock. Now Mr. Gordon didn't just mechanically pick any high VST-Vector stocks. He studied their graphs very carefully and favored those with smooth price patterns and accelerating price increases. He didn't just buy any Call options either. He favored the cheapest, in-the-money options he could get on a cost per month basis and always went out at least six months. He said it was like paying rent. He usually had at least ten long positions, never paid any attention to timing the market and said he never lost money in any given month.

Over the years, I found Albert to be an extraordinarily interesting person. He was a lawyer by training and had a keen, analytical mind. Most of all, he understood that VectorVest is a tool and it was up to him to learn how to make money with it. So he did his research and enjoyed it immensely. He often wrote to me about his observations and I wrote essays regarding Albert on two previous occasions, December 19, 1997 and March 16, 2001.

Keeley gave a presentation of Albert's system to the Los Angeles VectorVest User Group last summer and it was very well received. Keeley will give this talk again at the upcoming Options Course on Friday night, March 3rd.

I haven't heard from Albert for a long time now, but I buy Call options on high VST-Vector stocks. I think of this strategy as Albert's Gift to VectorVest.

THE RIMM STRADDLE/STRANGLE SWAP UPDATE.
Please see last Friday's essay. RIMM closed at $72.31 per share today. I bought to close the 10 RIMM February 70 Call contracts at $2.05 per share, losing $615.00, and I bought the 10 RIMM February 70 Put contracts at $0.05 per share, making $1,937.50 for a net gain of $1,322.50. At this point, I can close the 10 March strangles for a loss of $80.00 including commissions for a net gain of $1,242.50.

Two weeks ago, January 27, 2006, I wrote about "Two Good Indicators," i.e., the January Barometer and the Presidential Cycle. The former indicator signaled that the stock market would go up in 2006 and the latter suggests that the market will form a bottom in October; then take-off like a bird.

There is a third indicator, the Super Bowl Indicator, which was quite popular several years ago, but has recently lost much of its luster. This indicator says that the stock market will go up when a team from the old National Football League wins the Super Bowl. The Pittsburgh Steelers won last Sunday's Super Bowl, so it says we should expect stock prices to go up this year. Or should we?

Although this indicator had a phenomenal 90% success rate over its first 31 years of existence, it has been wrong more often than not over the last nine years. Even so, some proponents argue that it still has a much better track record than most analysts. Indeed it does. But I wouldn't pay any attention to it because it's totally nonsensical. So why am I writing about it?

Simply because it illustrates a phenomenon we should be aware of, i.e., the correlation of unrelated events. The media likes to publicize these artifacts because they attract attention, but they are less than useless. Unfortunately, it's not always easy to identify a contrived correlation of unrelated events. Take the January Barometer, for example. What does January's performance have to do with the stock market's performance for the whole year? I don't really know, but it could be investor psychology. That's just a guess.

The Presidential Cycle is the indicator I like the most of the three we've discussed here. It is based upon logical cause and effect relationships and has a good track record. In my book, it is by far The Best Indicator.

THE RIMM STRADDLE/STRANGLE SWAP.
Take a look at a 1-Year, Daily graph of Research in Motion, RIMM. Is that ugly, or what? Its price action has been up, down and totally unpredictable. And well it should be.

RIMM has been locked in a legal dispute with an outfit called NTP over patents covering the technology it uses in its popular BlackBerry PDA's. If RIMM loses, it may well be forced to shut down its U.S. wireless e-mail service. This event would probably cause RIMM's stock price to plunge. On the other hand, a victory would probably cause its price to soar. This is a perfect set-up for buying a Long Straddle Option position.

But there's a small problem. The court decision is scheduled to be made on February 24th while the next option expiration date is February 18th. Therefore one is forced to trade the March options to be in the game on February 24th, and this could get expensive. So what to do?

Consider selling the February Straddle and buying a March Strangle. In this fashion, one would receive about $3,550 for selling 10 Feb 70 Call and 10 Feb 70 Put contracts, the Straddle, and pay $2,700 for 10 Mar 75 Call contracts and $3,000 for 10 Mar 65 Put contracts, the Strangle. Their net cost would be $2,150 not counting commissions.

In this fashion, one could make a pot of dough if RIMM explodes upward, above $75/share, or plunges downward, below $65/share. Beautiful. This illustrates The RIMM Straddle/Strangle Swap.

WARNINGS:
(A). PLACE THIS TRADE AS ONE COMBO ORDER.
(B). DON'T MAKE THIS AT ALL UNLESS YOU ARE AN EXPERIENCED OPTION TRADER.

I've had a lot of fun lately, giving my talk, "How to Pick Stocks." I gave it about 10 days ago at the Sacramento AAII Chapter meeting in Sacramento, California and I presented it again yesterday here at the Orlando World Money Show. I thought it was well received both times.

I like to give this talk because it describes exactly what VectorVest is all about: Analyzing stocks for Value, Safety and Timing and ranking them from best to worst using VST-Vector. The part I like the most about giving the talk is showing the audience how high VST-Vector stocks have gone up year after year after year. Sure, about a third of the stocks are not higher now than when we recommended them, but the 10 and 20 stock portfolios have gone up over 99% of the time.

I am also aware that we do a lot of stuff with low-priced stocks that don't make it to the top of the Stock Viewer screen. That's a result of the indicators we have in VectorVest and the incredible UniSearch Tool which allow us to do so many different interesting things. In any event, if you want to build a solid portfolio for the long-term, go to Stock Viewer. Look at the top stocks ranked by VST-Vector. Them's Easy Pickings.

THE "FILTER BY" FEATURE.
Several years ago, we released the UniSearch Tool as part of VectorVest OnLine. Embodied in this fabulous tool, was a selection called "Filter by." This feature allowed one to specify certain criteria for the Stocks, Industry Groups and Business Groups they wanted to search. For example, one could "Filter by" WatchList and search only the stocks in the S&P 500. Or they could select Industry Groups and "Filter by" Selected Industries, Sorted Industries, Top Delta Industries or Top RMA Industries.

This is a tremendously powerful feature but it was limited to Industry Groups and Business Sectors. With our latest release, the "Filter by" feature was extended to Stocks. It was used in our January 13, 2006 "Strategy of the Week" illustration, Top 20 Newbies. Click here to view this strategy in the VectorVest University. This strategy finds only those stocks which have become one of the top 20 ranked by VST since the previous week.

The "Filter by" feature also plays a role in today's "Strategy of the Week." I hope that you will take a few moments to visit The VectorVest University to see how it's done. I'm sure that you will love this feature once you get used to it. A whole new range of search possibilities have been opened by The "Filter by" Feature.