We are proud to announce the unveiling of VectorVest U.K. at the Money Show in London, England today. The product was warmly received by the several thousand investors in attendance. VectorVest U.K. will be available to you starting Sunday, October 1, 2006 for thirty days at no charge. This product will join our other international products, VectorVest Canada and VectorVest Europe and will be priced accordingly at $49.00 USD per month or $545.00 USD per year. For those of you who are current subscribers to VectorVest OnLine, once the trial period has ended on October 31, 2006, you may receive this outstanding product at the low rate of $20.00 USD per month or $199.00 USD per year. Simply log on to www.vectorvest.com, click on the members button, enter your user name and password and select VectorVest U.K. Try it, you'll like it! VectorVest U.K.!

THE GOLDILOCKS SCENARIO.
Last week, we were pleased to learn that the Investment Climate had attained the exalted status of a Case 2 Bull Market Scenario. This scenario is also called the "Goldilocks" scenario because the economy is growing just fast enough to permit robust earnings growth, but not so fast as to cause inflation and interest rates to increase. In this scenario, stock prices are expected to soar.

The current situation also is likened to a "Soft Landing" because the economy is slowing down due to a series of seventeen consecutive interest rate increases by the Federal Reserve Board. All is not peaches and cream, however. The concern being that the economy may decelerate to negative growth and a "Hard Landing" instead of gliding gracefully to a lower rate of steady growth. Most investors will, of course, be anxiously watching and analyzing the daily flow of events and economic reports to see how this plays out. VectorVest, however, does not get caught up in this game. We believe that the consequences of all events are manifested in economic terms by changes in earnings, inflation and interest rates. So that's what we track.

Given the paradigm that stock values rise and fall in accordance with the direction of earnings, inflation and interest rates, we constructed a matrix of stock market scenarios which we call the "Truth Chart." This chart was first presented on March 21, 2003 and is reproduced here for your convenience.

Case	Earnings	Inflation	Interest	Prices	Comments
1.	Up	Up	Down	Up	Bull Market Begins
2.	Up	Down	Down	Up	Bull Market Thrives
3.	Up	Down	Up	Up	Rarely Happens
4.	Up	Up	Up	Up	Bull Market Ends
5.	Down	Up	Up	Down	Bear Market Begins
6.	Down	Down	Up	Down	Rarely Happens
7.	Down	Down	Down	Down	Bear Market Prevails
8.	Down	Up	Down	Down	Bear Market Ends

There is a story to be told with each scenario and we tend to tell them as they occur. As noted in my essay of 03/21/03, "the Case (2) scenario reflects the best of all worlds, a rare combination of a strong economy with rising earnings and falling inflation and interest rates. This is the so called "Goldilocks" scenario. It prevailed from January 1995 to October 1997." 1995 was a great year for the stock market, 1996 was only so, so, and 1997 was another great year until October came along. In any event, 21 months is a long time for this scenario to exist. Can it happen again?

There's really no reason why it can't. The housing and automotive slow-downs pose the largest threats to the economy and Dr. Bernanke knows it. He doesn't want to see those markets or the economy go down the tube, so he'll be lowering interest rates soon. In fact, he has already begun to emulate Dr. Greenspan's actions of late 1994, early 1995.

After brutalizing the market with a series of interest rate increases in 1994, Dr. Greenspan paused for several months beginning in December. Throughout this period, long-term interest rates were headed down lower, there was talk of a "Soft Landing" and stock prices began to soar. On June 2, 1995, stocks were so undervalued I wrote an essay called "The VectorVest Rocket." Finally, in July, Dr. Greenspan moved to lower interest rates by a "modest," as he termed it, quarter point. Indeed, The Fed had begun to stimulate the economy before it crashed and the impossible dream of a "Soft Landing" was due to come true. Inflation was no problem, and interest rates and earnings were working together to push stock values higher. The Case 2 scenario was in overdrive and investors were enjoying the fruits of The Goldilocks Scenario.

Stock value goes up when earnings increase and inflation and interest rates decrease. VectorVest also encourages investors to buy stocks when the market is rising from low points. Therefore, we track data regarding the key factors of earnings, inflation, interest rates, market performance and investor sentiment. A factor, such as CPI inflation, is deemed to be in a favorable mode when its trend indicator is above 1.00. Readings below 1.00 are, of course, deemed to be unfavorable. This information is documented each week in the Climate Section of these Views.

The Investment Climate is deemed to be favorable when the Composite of the trend indicators is above 1.00. With a Composite reading of 1.07, the Investment Climate here in the U.S. is currently deemed to be favorable. More information on each of the investment climate factors and their corresponding trend indicators may be found by clicking on Help, selecting VectorVest OnLine Help, clicking on Index, entering the letter "I" in the lookup box and selecting Investment Climate. (VectorVest ProGraphics v6.0 has slightly different selections.)

You may also see graphs of each factor and its corresponding trend indicator by clicking on Graphs in the Main Tool Bar and clicking on Market Climate Graph. When viewing the graph of the U.S. Investment Climate Composite, it is interesting to note that it bottomed at a very unfavorable reading of 0.78 in late 1999, early 2000 when the economy was strong and stocks were terribly overvalued. It peaked at 1.29 on 12/21/01 when the economy was weak and the value of the VectorVest Composite was near its ten-year low. Since then, it bottomed on 06/18/04 and has been hitting higher lows and higher highs. What does this imply?

At face value, it means that the economy peaked two years ago and has slowly been getting weaker. Falling inflation and interest rates are the result of a weakening economy. The CRB Inflation index has fallen 16.8% from its 05/12/06 peak and the yields on T-Notes and AAA Corporate Bonds have been falling for four months. It is also worth noting that the combination of earnings, inflation and interest rate trends changed last week from a Case 4 Bull market scenario to a Case 3 Bull market scenario. As of tonight, we have moved to a Case 2 Bull market scenario, in which we have the much desired soft-landing, Goldilocks scenario in which stock prices should soar. However, there is still a possibility of going to a hard-landing recession. To see what happens, stay tuned to The Investment Climate.

P.S. While this essay addresses the Investment Climate of the U.S. stock market, the same detailed analysis is done for VectorVest Canada and VectorVest Europe using appropriate country specific factors.

P.P.S. Next week, I'll discuss the Truth Chart and explain exactly how we determine the various Bull and Bear market scenarios cited in each database.

Last week I wrote about using the Business Sector Viewer along with RTRanking to identify stock market leaders. By leaders, I meant those stocks which were rising smartly and likely to power the market higher over a period of weeks or months. As you may recall, I concluded that even though the Utility Business Sector had the highest RT and RTRanking, Utility stocks were not capable of being leaders.

The reason for this conclusion was that the Utility Sector did not demonstrate the price behavior suggestive of leaders. RTRanking showed that this Sector fell behind when the market was rising early this year. Although it held up pretty well during the recent downturn, I expect the prices of leaders to explode in the upturn. I like to use the Delta function to see which stocks, groups and sectors are leading the way higher, and there are several ways this may be done.

One of my favorite techniques is to track Business Sector Price performance, week-by-week, from the low point of a downturn to the current date. Since the Price of the VectorVest Composite hit bottom on June 13th, I did a 1-Week Business Sector Price Delta, sorted by percent change on June 20th. The following week, I did a 2-Week Price Delta and so on. It's extremely interesting to note that the former leaders, Steel, Mining, and Metal Products, led the rebound in the June 13th to July 3rd rally. Our old friend, the Utility Sector, wasn't even keeping up with the VVC. On July 11th, the fourth week from the June 13th low, however, the former market leaders were still showing the largest gains, but our old friend, Utility, was now ranked above the VVC. The following week, it joined the ranks of the top 10 gainers with a paltry five week gain of 2.79%.

On August 15th, nine weeks from the June 13th bottom, Mining, Petroleum and Metal Products were still showing the largest gains with Utility in fourth place, having gained 8.16%. Not bad, but were the former leaders going to be the new leaders? As of September 5th, twelve weeks after the June bottom, the former leaders, Mining, Steel, Metal Products, and Petroleum were still leading the rebound. If you read last week's essay, "Looking For Leaders," you know I wasn't comfortable with that picture. I wanted to see some new blood.

Well, we got it last week. Mining, Steel, Metal Products, and Petroleum stocks got hammered, and utility stocks were little changed. It was proclaimed that the Bull market in commodities is over. The big gainers for the week were Retail, Internet, Building and Apparel. The biggest gainer for 13 weeks is REIT. Are you kidding me? I'm still looking for New Leaders.

Prior to the drawdown which began on May 10th, it wasn't that hard to make money in stocks. Prices were moving higher, although in a bumpy fashion, and the leading Business Sectors and Industry Groups were clearly evident. Even though the market appears to have made a bottom on June 13th, and August produced its best performance in six years, it hasn't been that easy to make money lately. So where are the leaders, i.e., stocks that are going to move this market higher?

I have read that Big Pharma is ready to make a move, Large Cap stocks are the place to be and a Tech rally is in the making. Barron's Magazine even suggested that you might want to buy some beaten down mortgage finance companies, home builders or appliance makers. Give me a break. I want to find rising stocks in rising Business Sectors. Not any Sectors, mind you, but Sectors that have what it takes to become leaders.

If I click on Viewers in the Main Menu Bar and click on Sector Viewer, I am presented with a window showing the VectorVest Business Sectors, ranked by Relative Timing, RT. The top ranked Business Sector as of yesterday's close was Utility. A 1-Year, Daily graph of this Sector shows that its Price took about a 10% hit in last October's pullback; then slowly worked its way back up to its former high. The move was so sluggish that RT peaked at a modest level of 1.12 on May 5th when it hit its Price peak at $29.25. Its Price came down with the rest of the market in the May drawdown, but a funny thing happened to its RTRanking. It went up.

To see this on your graph, use the "Edit Field List" to add RTRanking to your available graphing parameters and click on it. Amazingly, Utility's RTRanking was going down late last year and early this year while the market was moving higher. It hit a low point of 39 on March 27th. This means that the Utility Sector's Price performance was the second worst of the 40 Sectors we track. On April 3rd, its RTRanking jumped to 36 and proceeded to move higher as its Price went down. In this instance, the Utility Sector's Price performance was improving relative to the other Business Sectors. Its Price has been going up since June 14th and its RTRanking hit the best possible level of 1 on July 21st. Since then, its RTRanking has remained at 1 except for two days.

How can all of this help you make money? Well, by using RTRanking to analyze the Utility Sector, I saw that it ran counter to the broad movement of the market. Therefore, the Utility Sector can't be a leader. In fact, it's telling me that the market isn't doing very much in the way of going higher as long as the Utility Sector holds the number 1 RTRanking. On the other hand, Steel was definitely a leader as its RTRanking exploded from its 10/20/05 bottom and locked onto the number 1 position for months at a time. I don't see anything like that happening right now, so I'm still Looking For Leaders.