In my September 21, 2007 essay entitled, "Where the Market's Headed," I said that I expected stock prices to rally into January 2008. I rarely make predictions, but I did based upon the facts cited in the September essay.

My prediction was looking pretty good until October 12th when the rally stalled; then stock prices nosedived the following week. After a bruising sell-off last Friday, I admitted I had to go with the flow and became bearish. But I never said the market couldn't recover and rally into January. I felt the spark for such a rally could come from the Fed. They're meeting next Tuesday and are expected to lower the Fed Funds rate again on Wednesday, October 31st. If they lower rates 50 basis points instead of 25, as most experts expect them to, the market will take off like a bird. (Whoops, there goes another prediction.)

But guess what? It appears that we didn't have to wait for the Fed's decision to get the spark the market needed. It came from blundering old Microsausage of all places. They creamed their earnings forecast and raised guidance. Can you imagine that? The market is soaring as I write this essay and the gang on CNBC is acting like stock prices are going to the moon. Well, don't bet on that. There are still plenty of things the Bears can talk about to shoot prices down. But it feels good to have a solid up day compared to what we've seen for the last month.

Therein, lies a problem. The biggest up day we have had prior to today is September 18th, the day the Fed lowered interest rates. Now this leaves me to wonder, Has The Rally Resumed?

Ten years ago I wrote an essay called, "Not Surprised." The thrust of that essay was to let our subscribers know that Black Monday just didn't happen as a random event. There were several serious problems with the market in 1987 and our indicators were making them apparent.

For example, the market was overvalued. The Mighty Dow peaked at 2,705.5 on August 21st while our trustworthy VVDJIA stood at 2,184.3, 19.3% below the DJIA. Secondly, the market was in a downtrend. It sold-off sharply only one week after it peaked and the Canary died as our Buy/Sell Ratio fell from 1.44 to 0.50. The third major problem was that the Investment Climate was unfavorable. Interest and inflation rates had been rising for a year and stood at 10.52% and 4.53%, respectively. Dr. Greenspan was the new Head of the Fed and he wasn't going to do anything but push rates higher. The only good news was that earnings reports from large cap stocks such as EK, MCD and MO were strong. But you can't fight the trend.

So how did VectorVest guide its subscribers prior to the crash? On September 4, 1987, I wrote "Is the party over? Probably not, but it is getting late. It is a time for caution." From that point on, I became increasingly bearish. On October 9, 1987, I wrote, "It is a time to be defensive. Sell all "S" rated stocks. Place stop-loss orders on "H" rated stocks and take profits on strength."

By October 16th, the Friday before Black Monday, I thought the correction was essentially over. The Mighty Dow closed at 2,246.74, down 16.9% from the August high, and the BSR closed at 0.11. I wrote, "If you were unable to position your portfolio for this correction, don't panic. Although the correction is not over yet and the next several months may be very painful, the market will recover." Little did I know that the worst was yet to come.

Is another Black Monday on its way? Let's look at the facts. The current market is very much undervalued, not overvalued as it was in 1987. The Price of the VectorVest Composite peaked at $31.44 per share on July 13th, fell sharply to a low of $28.09 per share on August 16th and rallied back to a high of $31.36 on October 12th. The fact that it did not close above $31.44 suggests that the July 2007 high may be comparable to the August 25, 1987 high. In regard to the Investment Climate, we currently have the rising earnings and inflation while in 1987 we had rising earnings, inflation and interest rates. The fact that the Fed currently is lowering interest rates instead of raising them as Dr. Greenspan did in 1987 is a huge difference in the Investment Climate.

Another major difference between now and 1987, is that I was feeling bullish up until today, but I turned bearish six weeks before the crash of 1987. So are we going to have another crash? I don't think so. We certainly can have another downturn - even a Bear market, but I'm not anticipating another Black Monday.

THE CANARY'S WARNING.
In the Strategy Section of last week's Views I said, "The bad news is the "blast-off" stage of this rally has been completed and the momentum of rising prices has peaked." How did I know that?

I saw it on the Market Timing Graph. Please set the graph up in the Daily mode and show the BSR at the bottom. Please note that the Price of the VectorVest Composite went up on 10/10/07, but the BSR went down. I have seen this happen before and each time it was the precursor to a serious downturn. Look at the peaks of 06/04/07, 05/09/06, 02/01/06, 04/05/04, 06/17/03, 03/10/00, 01/19/00, 07/06/99, and 10/10/97. The most famous, of course, are the peaks of October 10, 1997 and March 10, 2000.

The "blast-off stage" is one in which the BSR rises as the Price of the VectorVest Composite rises. It ends when the Price of the VVC rises and the BSR fails to rise. I call this "The Canary's Warning." It's telling us that the fuel tank is empty and the Price of the VVC, if it continues to go up, is on a glide path. This path is defined by the price of the VVC hitting higher highs while the BSR is hitting lower highs. It does not necessarily mark the end of a rally as soon as it occurs, but it has done so on several occasions, such as 03/10/00.

While the 10/10/07 close wasn't the high point of this last rally, it appears to have marked the beginning of a downward journey for the market and the BSR. I didn't expect this to happen, but we can't ignore The Canary's Warning.

The market bottomed on Thursday, August 16th and I wrote an essay the very next day entitled "Looking to Go Long." Had you purchased the top ten stocks ranked by VST as of August 17th and held them through yesterday, you would have been up 25.27% with 10 winners and no losers.

Of course that is hindsight, but here's what I said on August 17th: "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."

Just as I had expected, we got the signal to go long on Wednesday, August 21st. The Model Portfolio is up 19.55% since then and closed yesterday, up 54.70% so far this year. Clearly, it has been a wonderful time to make money in stocks since the market bottomed on August 16th. The question is, however, have you been making money?

If you have not made money over the last eight weeks, please give us a call. Tell us what you think has gone wrong and we will work with you to correct it. We are not Investment Advisors and will not make specific stock recommendations. But we can show you how to make money with VectorVest.

The process is very simple: We wait for the market to go into an uptrend; then we buy high VST stocks. We don't necessarily buy the top VST stocks shown in Stock Viewer all time, so we show you how to use the UniSearch tool. It contains over 200 strategies that you could use when the market goes up. Seventy seven percent of these strategies have made money since August 17th. Which are the best strategies?

Simply look at our "Strategy of the Week" illustrations. We show you how to use the UniSearch tool and manage a portfolio over and over again with our selections of the best strategies. This week we will be illustrating a wonderful new strategy called "AC's Climbers." It shows you how to buy good stocks in the fastest rising Industry Groups. Visit the VectorVest University to see how it's done. You'll love it.

With VectorVest and the market in rally mode, you should be Making Money.

ELIMINATION OF PINK SHEET ADRs.
American Depository Receipts represent ownership in the shares of a foreign company trading on U.S. financial markets. Most of these shares have been trading on the New York and American stock exchanges until recently. Since the costs for being listed on these exchanges have gone up a great deal over the last few years, many of these ADRs have switched to Pink Sheets.

Unfortunately, we have found that it is impossible to get closing Price and Volume for these Pink Sheet ADRs on the day they close. This means that the Price and Volume data you have been getting on Pink Sheet ADRs has been a day late. We cannot accept this situation because it poses potential liability issues. Therefore, we have been eliminating these stocks from the database. If you have any questions, please call Product Support at 1-888-658-7638.

The first Friday of October has arrived and it's time to open our Summer Hiatus Portfolio. Yes, I'm going to buy the top 20 stocks ranked by VST descending as of today's close and hold them until the first Friday in July 2008. However, I will limit the number of stocks in the portfolio to two per Business Sector. Long-term VectorVest users may observe that this strategy is much simpler than the one I described in my June 16, 2006 essay called, "My Game Plan."

There's a long history behind the Summer Hiatus portfolio strategy which I won't go into at this time. However, the essence of this strategy is simple: you want to own stocks that are quite likely to go up in price over time, but you don't want to be in the market during the three worst performing months of the year, July, August and September. For those readers who want more details behind this strategy, please read my essays of 06/09/06, 06/16/06, 10/06/06 and 07/13/07.

The money making potential of the Summer Hiatus Strategy rests upon the body of evidence we have obtained showing that high VST-Vector stocks go up over time. Tens of thousands of 5, 10, 15, 20 and up to 50 stock portfolios have been tested for various holding periods and showed profits virtually all the time. Our latest tests showed that portfolios of the top 20 stocks ranked by VST-Vector have gone up 99.46% of the time when held at least one year. The average annual return of 2,611 portfolios was 18.35%. Only 14 portfolios failed to show a profit.

An interesting thing about these top 20 VST portfolios is that the longer one holds them, the more they go up. It's also worth noting that top 20 VST portfolios also work well for VectorVest Canada, VectorVest UK, VectorVest Europe and VectorVest Australia.

Just to be sure, however, everyone should remember that risk is always involved when investing in stocks. While there is no trading involved in managing a Summer Hiatus portfolio, it wasn't easy for me to do. I had a hard time sitting still while a stock like AXR went from $60 to $150; then crashed and burned. Yes, I made some money, only 3.70%, with Summer Hiatus - 2006, but that was my fault. I tried to outsmart the system and paid for the experience. Had I used the strategy of buying the top 20 VST stocks with a maximum of two per Business Sector last year, I would have gained over 18%. Having learned my lesson, I expect to make more money with Summer Hiatus - 2007.

P.S. Visit the VectorVest University to learn more about the "Summer Hiatus" strategy. You will be amazed to see how well it performed through both Bull and Bear markets.