The Price of the VectorVest Composite peaked on May 9th at $27.82 per share and closed at a price low of $24.74 on June 13th. The leading Business Sectors as of May 9th, i.e., Steel, Mining, Metal Products, Paper and Machinery, were among the most severely battered during this five week downturn. Now more than six weeks have passed since June 13th and the market has tried desperately to re-group for a new rally. Indeed, it rallied briefly from June 13th to July 3rd, but was shot down by North Korean rocket launches and a new outbreak of fighting in the Middle East. Nevertheless, our MTI and BSR have been achieving higher lows, which suggest that another rally is imminent. Ideally, one would want to buy stocks in the Business Sectors which are emerging as the new leaders. How do we find these guys?

The simple answer would be to open Sector Viewer and see which Business Sectors currently have the highest Relative Timing, RT, values. If one did this as of last night, they would find that the top five Business Sectors are now comprised of Utility, REIT, Bank, Container and Market. Should I buy stocks in these Business Sectors when the market rallies?

It's interesting to note that the top three Sectors, Utility, REIT and Bank, are interest rate sensitive. Obviously, the smart money is betting that interest rates have peaked. Sounds good, but are these Sectors at the top of the list because they have held up better than the others or because they have been rising rapidly? A 10-day Price Delta shows that Utility is the fastest rising Sector and Mining is ranked among the top five fastest rising Sectors. So which Sectors really are the new leaders?

I ran some back-tests to see how picking stocks from rapidly rising Sectors compared to picking stocks from high RT Sectors. While both methods produced positive results in the periods I tested, the technique of picking stocks in the most rapidly rising Sectors consistently gave better results. So I would have to say that using a 10-day Price Delta on Business Sectors is a better way of finding New Leaders.

P.S. Visit the VectorVest University to see this technique illustrated as this week's "Strategy of the Week."

When I played high school football, our playbook was a hoot. Whether it was a kick-off return, a double reverse or a plunge up the middle of the line, every play was designed to produce a touchdown. I wondered why we needed a punter. In reality, we hardly ever made a touchdown. Something always happened to destroy our grand plans.

And so it is with the Federal Reserve Board. Their job is to maintain monetary stability and full employment - - a hopeless task if I've ever seen one. Yet, they never give up. Dr. Ben Bernanke, Chairman of the Federal Reserve Board, reported to Congress on Wednesday. He said that economic growth appeared to be slowing, (which could cost jobs), but it should gradually reduce inflation, (the primary enemy of monetary stability.) Stock investors took this statement to mean that the long awaited "pause" in raising interest rates was imminent. Stock prices soared. Dr. Bernanke also said "the U.S. economy appears to be in a period of transition," and the nation is set for "a sustainable non-inflationary expansion." Bingo, touchdown!

He basically described the Goldie Locks scenario in which everything is just right, neither too hot nor too cold. In VectorVest, we call this a Case 2 Bull Market Scenario, wherein earnings rise and inflation and interest trend lower. See VectorVest Views, 03/21/03 and 03/28/03. This scenario combines the best of all worlds for stock prices. Unfortunately, it doesn't happen very often. In particular, I can't ever remember it happening right after a Case 4 Bull Market Scenario like we are having now. Indeed, we are more likely to experience a Case 5 Bear Market Scenario, in which earnings are falling while inflation and interest rates are still rising.

In order to achieve his vision of the future Investment Climate, Dr. Bernanke will have to pilot this economy to a perfect, soft landing. This will be as easy to accomplish as it was for my high school football team to score a Touchdown.

This market is the worst it's been since 2002. Or maybe 1998. 1994 was pretty bad too. Naw, it wasn't as bad as 1990. Do we see a pattern here? Of course we do. It's the four-year cycle, a.k.a., the Presidential Cycle.

Several subscribers called to ask why I said that 2006 would be a rough year for stock prices until October or November; then the market would blast-off with a rally lasting until January 2008. Well, I'm not a forecaster, nor a prophet, but I have learned and experienced enough about the Presidential Cycle to be convinced it works. As noted in my essay of 12/30/05, this phenomenon is described in Chapter 19 of my book, "Stocks, Strategies and Common Sense," and also has been cited in numerous essays over the years. To find these essays, simply click on "Views," then "VectorVest Views," then "Search Views," type Presidential in the text box and click on "Search" at the bottom of your screen.

So what is it that makes the Presidential Cycle so powerful? It's simply the overwhelming desire of an incumbent political party to hold office. Nothing helps a party get re-elected more than a strong economy and lots of jobs. Knowing this, the party in power will do and spend what ever it takes to create jobs. But, but, but, the economy is slowing down right now, so how are they going to turn the economy around? Easy. The politicians will spend money like hell won't have it, and The Fed will lower interest rates.

Everything appears to be on schedule. The economy is beginning to show signs of weakness and good old Uncle Ben is fixing to take at least one more shot of raising interest rates. This move will infuriate stock investors, causing stock prices to tank lower sometime in October or November. Then good old Uncle Ben will lower interest rates and the bulls will stampede again.

Ah, there's nothing like The Presidential Cycle.

The market was spooked Wednesday by North Korea's missile launches on Tuesday and by ADP's prediction of 368,000 new jobs in June. Investors did not want to see that many new jobs because it heightened the likelihood of another rate hike by the Fed. When they got the actual jobs report on 121,000 new jobs, stock prices went higher; then lower. What's going on?

It all has to do with unrealistic expectations regarding the Fed, interest rates and the economy. As noted in my essay of December 30, 2005, "The Year Ahead," the media and most analysts were quite bullish on the outlook for 2006. You may recall that I wrote about two "experts" appearing on CNBC late last year who were both bullish for different reasons. The first expert, who had predicted the NASDAQ would go to 7,000 in March 2000, was denoted as "Nincompoop A." He said the market will rise in 2006 because the economy is strong and earnings will continue to rise. The second expert, a perpetual bull, was denoted as "Nincompoop B." He said the market will go up because the economy will get weaker and interest rates will fall.

In reality, Nincompoop A failed to realize that the Fed will continue to raise interest rates and compress P/E ratios as long as the economy is strong. Nincompoop B failed to recognize that stock prices normally fall when the economy weakens. So today's market reaction of rising on news of the weaker than expected jobs report was based on hope that the Fed will stop raising interest rates while the economy is still strong. It began to fall on fear that the jobs report indicates the economy is weakening.

Clearly, the Fed will not stop raising rates while the economy is strong and the jobs report wasn't that bad given the slowdown in the housing sector. In any event, the desire for economic data that is neither too hot nor too cold is a normal condition of a classic Case 4 Bull Market Scenario. In this scenario, there's a race between rising earnings which drive stock prices higher vs. rising inflation and interest rates which cause stock prices to go down. This is a difficult scenario to deal with and many investors become frustrated when economic data doesn't evolve exactly as they wish.

As far as I'm concerned, I stand by what I said last year, "I expect 2006 will be a rough year for stock prices until October or November. Then the blast-off will occur. The rally will last until January 2008." In the meantime investors will be Betwixt and Between.

TEENY BOPPERS SC.
Two weeks ago, I wrote about Explosive Low-Priced Stocks. Last week, I commented on Firework stocks. Today, I'm going to write a few words about one of my favorite strategies, Teeny Boppers. This strategy is described in Chapter 16 of "Stocks, Strategies & Common Sense."

One of the things I like most about Teeny Boppers is that it finds potentially big winners in any kind of market environment. For example, it found both SOHU and SINA, two Chinese internet stocks, during one of the worst sell-offs of the recent bear market. SOHU went from $1.70 per share on June 28, 2002 to a peak of $42.68 on July 14, 2003, and SINA went from $1.75 on June 28, 2002 to a peak of $48.25 on January 26, 2004.

A key to picking great winners is that Teeny Boppers will find them over and over again as they rise in price. It found NTRI at $2.97 on December 3, 2004; then it found NTRI 14 more times in January 2005 as it moved up toward $5.00. NTRI hit a peak of $74.86 on May 10, 2006. I simply run it every night and pay particular attention to stocks with repetitive appearances. I also take a quick look at the graphs. I have found that stocks with smooth, explosive chart patterns have a better chance of turning into big winners. This assessment is facilitated by using RT and the Comfort Index, CI, in the sort. Therefore, I have been sorting Teeny Bopper stocks lately using VST*RT*CI Desc as the sort. I call this search, "Teeny Boppers SC" where SC stands for Supercharged.

A portfolio of Teeny Bopper SC stocks is being illustrated as this week's "Strategy of the Week." This is a great strategy and it would be well worth your time seeing how it works at the VectorVest University. So don't be one of those betwixt and between investors. Go for the big winners with Teeny Boppers SC.