Several months ago, November 10, 2006 to be exact, I wrote an essay on how I use Stock Viewer. In that essay, I said, I examine the top 20 stocks ranked by VST-Vector and "I look at the graph of each and every one of the top 20 stocks every night." China Mobile caught my eye two weeks ago, August 17, 2007. Then, a few days later, an old friend, China Life, appeared along with LDK Solar. Hmm, the market was rebounding and these guys were exploding. It was time to get serious about Chinese stocks.

Not only did I want to cherry-pick the top rated Chinese stocks, but I thought it would be a good idea to gather all the Chinese stocks that VectorVest covered in a WatchList. I called it, "Ka-Ching China" and put it in the Special WatchLists Group. Frankly, I was amazed that I was able to put 121 stocks in this WatchList. If there are any Chinese stocks that I missed or that you would like to see us add, please email amyo@vectorvest.com.

The emergence of China as one of the most powerful economic forces in the world is one of the great stories of our life time. FT.com published an article today called "Big in China." It said that "the total universe of mainland stocks, including those listed in Hong Kong, now stands at some $5,000bn, eclipsing the Japanese market." It goes on to say that in terms of market capitalization, the Industrial & Commercial Bank of China, ICBC, is the world's largest bank, while China Mobile, China Life and Air China take the top slots in telecom, insurance and aviation, respectively. Given China's size, I wonder how many other Chinese goliaths are in the making.

So what can we do with the Ka-Ching WatchList? Well, of course, it could be used as a reference list, but that's not going to make a lot of money for you. The best way to use the Ka-Ching China WatchList is as a filter in a search or strategy. For example, I opened the WatchList, set the drop-down calendar to 08/22/06, and ran a Quick Test to 08/30/07 on the top 20 stocks ranked by VST. These stocks gained 57.11% with 17 winners and three losers. That's not bad, but will these stocks continue to sizzle? Yes, as long the economy continues to grow at its blistering pace. The Chinese economy grew at 11.5% over the first half of 2007 and 11.9% in the second quarter. So keep an eye on Ka-Ching China.

P.S. For your convenience, the Ka-Ching China Watchlist has been installed in the Special Watchlist folder. Enjoy!

WHO'S IN CHARGE.
The biggest question on Wall Street is whether Dr. Ben Bernanke will lower the Fed Funds rate soon. As noted in last week's essay, Wall Street has been clamoring for such a move, and those who are making the most noise are the same people that made the most money on low interest rates.

In a surprise move aimed to do something before Congress returned to work next week, President Bush offered a modest plan to help subprime home owners. As expected, Dr. Ben Bernanke did not promise a rate cut in his speech this morning, but he didn't say he wasn't going to lower the Fed Funds rate either. Put together, the speeches showed investors that Bush and Bernanke hadn't forgotten them and were enough to spark a buying spree on Wall Street today.

All this notwithstanding, it is my impression that all the jawboning for a cut in the Fed Funds rate is not going to influence Dr. Bernanke that much. He's not running for office and the economy isn't showing sufficient damage for him to act yet. There are things that may cause him to make a rate cut. First, 90-day T-Notes are yielding only 3.99% compared to the 5.25% Fed Funds rate. Traditionally, yields on 90-day T-Notes have led the way for Fed Funds rates. Secondly, he will cut interest rates severely if he senses danger to the banking system.

Even so, something tells me that Dr. Bernanke may be stubborn come September 18th, the date of the next Federal Open Market Committee, FOMC, meeting. He's got something to prove. And that's to let everyone know Who's in Charge.

Starting with Jim Cramer's August 3rd tantrum on CNBC to lower the Fed Funds rate, I have never seen so many cry babies in my life. And the chorus gets louder each day.

Yesterday I read Mr. Wayne Angell's op-ed piece in the Wall Street Journal entitled, "Lower the Fed Funds Rate." I also saw the spectacle of Mr. Angelo Mozilo, CEO of Countrywide Financial Corp., (CFC), on CNBC, claiming that the housing slump would lead to a recession. And let's not forget bond market guru, Mr. Bill Gross' recent comments. He said that lowering the Fed Funds rate would not be enough to clean up the subprime mess and that the White House should bailout homeowners who can't pay their bills. Is this advice being offered out of the goodness of their hearts?

Mr. Angell, a brilliant economist, was a member of the Federal Reserve Board of Governors from 1986 to 1994. After leaving the Fed, he became Chief Economist at Bear Stearns. Now he is President of Angell Economics. Since leaving the Fed, he has written a number of articles regarding Fed policy and what the Fed should do. All of them, I felt, were aimed to help the big boys on Wall Street. Yesterday's attack was no different.

Mr. Mozilo, as knowledgeable a person in the mortgage business as you will find, is a CNBC regular. Boy, has he changed his tune. A year ago he reassured viewers that CFC would waltz through the housing slump, hardly missing a beat. Yes, he admitted that record profits wouldn't be possible during this period, but CFC would do very well, thank you. Nevertheless, he sold a lot of CFC stock just before the credit crunch hit the fan a few weeks ago. Just diversifying his assets, you know. Now CFC is lucky to be alive and BAC owns a large chunk of the company. Do you think cheap money would help CFC's stock price? Do you think the threat of a recession might encourage Dr. Bernanke to provide it?

Mr. Gross, Managing Director of PIMCO, is harder to figure out. He's considered to be the most successful bond investor of this generation and I'm not sure where his skin is in this game. I would guess, however, that the violent turmoil in bond markets has caused him to have more than a few sleepless nights lately. In a strange way he began voicing opinions about the stock market about a year ago. Given his stature, there was always a reaction to what he said. Just a few weeks ago, he triggered a sell-off by simply saying that stocks were overvalued. Now he wants the President to create a Reconstruction Mortgage Corporation, RMC, to bailout an expected 2,000,000 homeowners who can't pay their bills. At $100,000 a pop, that's a $200,000,000,000 ticket. Just about what "W's" father spent to bail out the S&Ls in the early'90s.

So what's Bernanke going to do? I'll stick with what I've said in the past. The Fed never lowers the Fed Funds rate until the economy is in trouble. In other words, the Fed never acts until it's too late. Oh, and thanks for the Free Advice.

P.S. Mr. Bush rejected Mr. Gross' suggestion for an RMC out of hand.

STRATEGY OF THE WEEK.
Mr. Gordon White will be giving a follow-up presentation on last week's "Easy Does It" video. He will show exactly how to implement and test a great "Easy Does It" strategy, first by using Portfolio Manager; then by using the Simulator. The techniques he demonstrates should put money in your pocket.

Let's mark Thursday, August 16th, as the probable bottom of this downturn. The Price of the VectorVest Composite closed at $28.09, five cents lower than its previous close, but 70 cents higher than its intraday low of $27.39. A big price reversal such as this is a very good sign that buyers were jumping back into the market.

On many occasions, I have said that a Buy/Sell Ratio, BSR, below 0.20 indicates an oversold market condition and a time when investors should sense that a bottom is near. This event first happened on Friday, August 3rd, but it didn't feel right to me, so we stayed out of the market. Sure enough, the market rallied the next three days; then plunged yesterday to its capitulation low of $27.39. At this point, the BSR hit an intraday low of 0.05; then rallied back to close at 0.10, up 0.02 from Wednesday's close of 0.08. When the BSR closes up from a previous day while the Price of the V V C closes down, a bullish divergence is produced which signals that price momentum has swung to the upside.

Another sign that we've probably seen the bottom is that the Price of the V V C closed on Thursday only eight cents higher than it did on March 5th, the low point of the previous downturn. Had the Price of the V V C closed below this level, $28.01, we would have had to go way back to July 2006 for the next support level, which is $24.82. Whew, that would have been painful for those who stayed long all the time.

The best evidence that we have probably seen the bottom is that the Fed lowered the Discount Rate by 50 basis points to 5.75%. While this is not as strong a signal as lowering the Federal Funds rate, which is at 5.25%, it says that the Fed is aware of what is going on and will step in with a rate cut when needed.

Just for the record, the Discount Rate is the interest rate charged to commercial banks and other depository institutions on loans received from the Fed. The cut in the Discount Rate was aimed to strengthen the financial system. The Federal Funds rate is the interest rate at which private institutions lend to other depository institutions overnight. A cut in this rate would be aimed at strengthening the economy. Dr. Bernanke, Head of the Fed, hasn't admitted yet that the economy needs help, but it's expected that he will in the September FOMC meeting. In any event, there's hardly a better reason for the market to move higher than a Fed rate cut.

Why did we stay in cash when the market was getting killed earlier this week? The answer has two parts: 1. No one knows how low prices may go and, 2. You never know when the Fed is going to step in and drive the market sharply higher such as it did this morning. Yeah, you're missing the fun of shorting stocks as stock prices moved lower, but you've got a real problem when the market explodes. If you're in cash, you can join the party anytime you wish to.

Assuming you're in cash, what do you do now? If you're an Aggressive Investor or Trader, you should have bought stocks today. If you're a Prudent Investor, you should be getting your shopping list ready. If you're Riding-the-Wave, as we do in the Model Portfolio, you should be checking strategies with which to go long. We are going to go long the day after we get an Up signal from the Primary Wave provided the market is moving higher. I expect this to happen next Tuesday or thereabout. Just stay tuned to these Views, because we're Looking To Go Long.

EASY DOES IT.
If I had a crystal ball, I would tell you exactly which strategy to use when you get back into the market. But I can't see into the future, so we work real hard to see what has worked in the past and hope it works one more time. Fortunately, Ms. Angel Clark has done all the hard work and she has prepared a brilliant presentation on how to reap big profits by buying stocks at the beginning of Confirmed Up signals. Visit the VectorVest University to see this week's "Strategy of the Week," called "Easy Does It."

VECTORVEST REALTIME.
In case you're wondering how I got intraday information on the Price of the V V C and the BSR, I got it from VectorVest RealTime, a new product currently under development. While I don't know for sure when it will be released, I can tell you that it will be different from and better than anything else you have ever seen. It's going to be a sensational product. VectorVest RealTime.

Last Friday I said that the Buy/Sell Ratio, BSR, in our Market Timing System finally fell below 0.20 so I would normally start thinking about a bottom. But my bones were telling me it's better to sit and watch right now. So what happened?

On Monday, the big Wall Street banks and brokerage houses cranked up their hype machines and began telling us that everything is A-OK, subprime problems were under control, the credit crunch wasn't that bad, liquidity was still plentiful and that now was a good time to buy stocks, especially financial, housing and mortgage stocks. Their prices took off like birds. I couldn't believe it. Why would anybody want to buy these stocks? Were there that many shorts covering their positions? Or were the banks and the brokers buying stocks just to pump up prices. Market breadth was not good on Monday and this told me it was a phony rally.

So the snow job continued and actually got bolder through Tuesday. Stock prices closed higher once again. On Wednesday, a great earnings report and the charm of Mr. John Chambers, Chairman, President and CEO of Cisco Systems worked its magic. (See my essay of May 10, 2002). Stock prices soared and the Primary Wave of our Market Timing System gave an Up signal. We were looking to buy if the rally continued.

On Thursday, however, a little guy with thick glasses and wearing a green eye-shade deep in the bowels of the largest bank in France said, "sacre bleu," this can't go on. BNP Paribas halted withdrawals from three of its subprime-related funds because the funds couldn't be properly valued. They said it was because of the "complete evaporation" of liquidity in some parts of the market. Stock prices got hammered.

So what happened to all the reassuring words we heard? Just remember that the snow job we got last week came from the same people who told us to buy stocks all the way down in the bear market of 2000-2002. Sure I like to buy stocks when they are cheap, but I try to never, ever buy them on the way down. That's why I waited for the Primary Wave to give an Up signal before even thinking about going long. And I may even wait for a Confirmed Up signal before jumping back into this market. So here we are watching the slam, bang, bone crushing sell-off we were looking for. What do we do now?

How about doing some window shopping? And I said window shopping, not buying. Wouldn't it be nice to find some good stocks we wish we had already owned. The easiest way to find these stocks is to simply sort Stock Viewer by RS. These stocks are some of the best to own for the long-term. As of last night, the highest ranked stock by RS was Stryker Corp., SYK. Look at the EPS pattern on an All Weekly graph. It doesn't get any better than that folks. I've written about shopping for high RS stocks before, so see my essays of August 4, 2006, October 14, 2005 and May 13, 2005.

If you're looking for more excitement, simply read the Views every night. We'll list some good strategies for you when we decide to go long in our Model Portfolio. To see how well these strategies have performed in the past, visit the VectorVest University. It's a great way to see what's going on in the market. And this week Mr. Bill Shelton will be giving a great presentation on Window Shopping For Bargains.

ARE YOU KIDDING ME?
Take a look at a five year graph of Westwood One, WON. Note that it closed at $39.06 per share on 01/10/03 and is at $3.40 on 08/09/07. Over this time, EPS has deteriorated from $1.15 per share to $0.24. GRT has gone from 25% per year to -5%. VectorVest currently values this stock at $2.37 per share and it has an "S" rating.

Yesterday I got an email from a newsletter I subscribe to. It said that, "Westwood One reported second quarter earnings and made 8 cents per share. It generated $15.8 million in free cash flow, versus $20.4 in the same period last year." Not ideal, but hardly Armageddon. Nevertheless, the market is hammering the stock and it's down about 60% from its reference price. So the editor quotes Peter Lynch who allegedly said, "I've bought stocks at $10 that went to $2 and then to $30. You just can't predict the bottom or the top."

Then the editor says, "Think about that. One of the greatest investors of all time doesn't think an 80% drop in share price is a big deal. It's a normal part of investing in individual stocks. We buy, sell, and hold based on evidence, not market-based ghosts and goblins. A volatile stock price isn't sufficient evidence to cause us to exit a potentially profitable and apparently undervalued stock. My advice is to HOLD Westwood One. Don't buy more. But if you haven't bought the stock yet, this is an ideal time to consider a new position."

The newsletter is touted as recommending "Safe Stocks Under $10 a Share." Are You Kidding Me?

CONTRA ETF WATCHLIST.
For your convenience, a new WatchList called "Contra ETFs" has been installed in the ETFs folder.