About 10 years ago, I bought a book written by Jeff Cooper called "Hit and Run Trading: The Short-Term Trader's Bible." I found the book to be informative, easy to understand and well worth the $125.00 I paid for it.

It taught me some things I still use today and it was the inspiration for a great VectorVest strategy called, "Explosive Break-Out Formations." The most important thing I may have learned from Jeff's book, however, came from its title. That was to take the money and run. This is exactly what we did in our Model Portfolio this week.

Jumping in and making a quick killing like we did was similar in principle to what Mr. Cooper described in his book, but the setup, as he calls it, was quite different. First of all, we had to sense that an explosive breakout was near. This, of course, was fully described by our work on Timing-the-Market. Next, we had to pick the right strategies to use. This was easy to do since we know that stocks with the lowest RT values fly the highest on a rebound. Thirdly, we had to know when to take the money and run.

Again, this was very simple. We used a 5% Stop Price to exit positions as we have done in the past and we did not replace any stocks with new positions. A Stop was raised when a stock's price went above its purchase price, and we did not lower any Stops from their high points. Yes, a 5% Stop is awfully tight, and we have left a lot of money on the table from time to time. But it worked very well with the "Odd Fellows" portfolio.

By nature, I like to hold a stock as long as I can, but "Riding the Wave" is a trading strategy and it has to be managed as such. On the other hand, the "Stalwarts" portfolio is almost a "buy and hold" strategy which sells on the second weekly 'S' rating. It's getting hurt right now, but I'm betting it will improve as a new group of leaders emerge from the rotation currently taking place. You can see this happening right now as a new group of names are appearing at the top of Stock Viewer. You can use the "High-VST Newcomers" search to see who these guys are.

You may have noticed last Wednesday that we said we would begin to replace open positions in the Model Portfolio with stocks found by the High-VST Newcomers search. The reason for this decision was that we know that "short covering" had a lot to do with the explosive nature of last week's rally. Therefore, the price increases we enjoyed were unsustainable. So we wanted to switch to a search which would find stocks with sustainable price increases.

The High-VST Newcomers search finds stocks which promise long-term gains.
The searches we suggested using last Wednesday, July 16th, are designed to be used at market bottoms for Making a Quick Killing.

P.S. We have received several reports from subscribers who made phenomenal profits with the Pirates Long search.

If you had any doubts about the efficacy of VectorVest's Market Timing System, they should have been dispelled over the past year. Our work could hardly have been any better.

One year ago, July 20, 2007 to be exact, I wrote a brief commentary called, "Beware the July High." It noted that "the Price of the V V C had corrected sharply in eight of the past eleven Julys and is down 1.30% from its July 13th high." In the Strategy section of these Views, we advised Prudent Investors not to buy stocks. We advised Aggressive Investors to play the market to the downside, and we were in cash in the Model Portfolio. Moreover, our "Strategy of the Week" was that of "Protecting Profits."

Sure enough, the Price of the V V C crashed 61 cents per share two days later, July 24th, and we got a Confirmed Down signal on July 26th. A month later, a gentleman I had never met got up from his dinner table while I was at the Cleveland Airport Marriott Hotel to give my fantastic presentation on "How to Master the Market," and thanked me for all the money I had saved him and his brother who was also a VectorVest user. He said the July 20th call was all they needed to lock in their profits.

Well, that wasn't the only great call we made last year. I am particularly proud of my October 19, 2007 essay called "The Canary's Warning," in which I explained how a special signal from the Buy/Sell Ratio "marked the beginning of the downward journey for the market." Of course, we then got the "shocking" C/Dn signal on November 1, 2007 that no one would believe. Fortunately, on the very next day, November 2, 2007, I wrote about how you could make money in a down market by buying Contra ETFs. Our Strategy of the Week was, "How to Make Money Using CONTRA ETFs."

Once again, this strategy made huge profits for our subscribers when they followed our lead of using it to play the downturn of June 6, 2008 to July 14, 2008. At present, I am especially pleased with the guidance we gave you over the past week regarding the expectation of this week's explosive rally. It was about as close as we're ever going to get to Perfect Timing.

P.S. Don't assume the current rally means the Bear Market has ended, because it hasn't. Please see the Investment Climate section shown below. We're in a Case 5, Bear Market Scenario. Inflation rates are soaring, interest rates are still way too low and Ben Bernanke can't do a darn thing about it. Finally, and most importantly, earnings are still trending lower. The Bear Market will not end until this indicator goes above 1.00 and that's going to be a while yet.

If you were watching CNBC before the open this morning, you probably noticed that most of the stocks streaming along the bottom of the screen were Exchange Traded Funds, ETFs. Yes, ETFs. They have become very big players in today's market and can be very important to your wealth.

I first wrote about ETFs on September 8, 2000. In that essay, I gave a brief explanation of what ETFs are and described how to find them in the VectorVest database. Finding them was pretty easy to do since we had put all 66 of them into an Industry Group called, "Market(Baskets)." As the number of ETFs in our database grew, we changed the name of the group to Market(ETFs). Last week, I reported that we had split the Market(ETFs) group, which had grown to over 650 stocks, into two new Industry Groups: Market(ETFs - Long) and Market(ETFs - Short). Wow, this move showed that Market(ETFs - Short) was the hottest Industry Group in the database!

Now we have taken the major step of creating a Business Sector called ETFs and we are classifying the ETFs in the Market(ETFs - Long) Industry Group into seven new Industry Groups, called: ETFs(Commodities), ETFs(Currency), ETFs(Fixed Income), ETFs(Foreign), ETFs(Sector), ETFs(Specialty) and ETFs(United States). We're still completing this process, so some ETFs still remain in the Market(ETFs - Long) group. Of course, we renamed the Market(ETFs - Short) group to ETFs(Short).

The primary guide we are using to make these classifications is a book called, "The ETF Book: All You Need to Know About Exchange Traded Funds," by Richard A. Ferri, published by Wiley. Mr. Ferri provides much more detailed classifications than we have chosen to use. I believe these new classifications will give you the information you need to make better decisions without fragmenting them too much.

Take a look at what we have done. Click on Viewers on the Main Menu Bar, click on Industry Groups and bingo, there's ETFs(short) at the top of the list, followed by ETFs(Commodities) just below it. Note that the CI, Comfort Index, rating for the ETFs(Short) group is 0.89 and that of ETFs(Commodities) is 1.53. This means that the ETFs(Short) group is quite volatile and while ETFs(Commodities) has been very stable. Both groups have been big winners lately. Look at their graphs, and you'll see what I mean. It was impossible to get this kind of information prior to creating the new ETF Classifications.

Last week I said that "The key to deciding whether anything is good or bad for stock prices is what it does to earnings, inflation and interest rates. Rising earnings cause stock value to go up, so that's good. Rising interest and inflation rates cause stock value to go down, so that's bad." So, rising earnings is good and rising inflation and interest rates are bad. What is the net effect of these conflicting forces?

The answer is given by The Truth Chart. The Truth Chart was introduced to our readers on March 21, 2003. It presents the eight possible combinations of rising or falling earnings, inflation and interest rates that can occur and indicates what effect each combination will have on stock prices. It also arranges the eight possible combinations, i.e., scenarios, in accordance to bull and bear market cycles and identifies where the Investment Climate is within the cycle.

For example, in the March 28, 2003 Climate Section of the Views, I said "With earnings trending downward, inflation trending upward and interest rates trending downward on average, our Truth Chart is telling us that we remain in the Case (8) scenario, looking forward to the end of the Bear market." We remained in this scenario until June 20, 2003 when inflation turned lower; then, on July 3, 2003, exactly five years ago, earnings showed an upward trend, putting the Investment Climate into a Case (2) scenario of rising earnings and falling inflation and interest rates, the classic "Goldi-Locks" scenario in which a Bull market thrives. The Truth Chart told it exactly the way it was. So where are we now?

Unfortunately, our Investment Climate indicators show that earnings are falling currently while inflation and interest rates are rising. This combination reflects a Case (5) scenario in which Bear markets begin. We have been in this scenario since March 28, 2008. Prior to that, the Investment Climate went from a Bull market to a Bear market scenario on February 15, 2008. It was no surprise. We could see this Bear market coming for months ahead of time. How did we do that?

Simply click on Graphs on the Main Tool Bar, select Market Climate Graph and check S&P Earnings and S&P Earnings - VV. Uncheck all other data, set the time Period to 5 Years and click on Get Graph. You could clearly see the path of rising; then falling earnings in the upper portion of the graph, and you could also see the trend indicator go from above 1.00 to below 1.00 on February 15, 2008. What could be clearer than that? You may also wish to read my essay of October 13, 2006, called "The Bull/Bear Market Indicator." OK, so when will this Bear market end?

According to what our Investment Climate indicators and the corresponding Market Climate Graph are showing for S&P 500 earnings, it's going to be many months, perhaps a year or more, before we see a Bull market scenario identified by The Truth Chart.