I have received some feedback recently that the Color Guard is confusing and hard to understand, so this essay is dedicated to explaining, as well as I can, how it works.

Think of the Color Guard as you would a traffic light. Green means go, it's OK to buy stocks. Yellow means caution, it may or may not be OK to buy stocks. Red means stop, don't buy any stocks.

Can it really be that simple? In a perfect world, the answer would be yes, but there's more here than meets the eye. For example, I'm not going to go through a green traffic light if I see a truck in my path, running a red light. Even though I have the green, I always look both ways to make sure it's safe to proceed. This is why our trend indicators, the Primary Wave and the Market Timing Indicator, are important parts of the Color Guard.

We use colors to report the up and down movements of the Price of the VectorVest Composite, the Relative Timing of the V V C and the Buy to Sell Ratio, and we use Up and Dn signals to report the direction of our Trend Indicators. Put it all together and we have a set of three lights and two indicators. Here's a summary of the most likely combinations of light colors and trends, what they mean and the suggested action to take:

LIGHTS......	TRENDS ..............	MEANING................	ACTION
3 Green.....	UpUp	The Color Guard is Bullish.........	Buy...
2 Green.....	UpUp	The Color Guard is Somewhat Bullish	Buy...
1 Green.....	UpUp	The Color Guard is Mildly Bullish..	Buy...
1 Green.....	UpDn	The Color Guard is Mildly Bullish..	Buy w Caution.
3 Yellow....	UpUp	The Color Guard is Neutral.........	Buy w Caution.
3 Yellow....	UpDn	The Color Guard is Neutral.........	Buy w Caution.
3 Yellow....	DnUp	The Color Guard is Neutral.........	Do Not Buy.
3 Yellow....	DnDn	The Color Guard is Neutral.........	Do Not Buy.
1 Red.......	DnUp	The Color Guard is Mildly Bearish..	Do Not Buy.
1 Red.......	DnDn	The Color Guard is Mildly Bearish..	Do Not Buy.
2 Red.......	DnDn	The Color Guard is Somewhat Bearish	Do Not Buy.
3 Red.......	DnDn	The Color Guard is Bearish.........	Do Not Buy.

Given this array of light combinations, trends, meanings and actions, I can see why some people may be confused by the Color Guard. But here's how to make it real simple: IT'S ALWAYS OK TO BUY STOCKS WHEN THE PRIMARY WAVE IS UP.

The Primary Wave, shown on the left side of the Trends column, is discussed at some length in my essay of July 9, 2004. The Underlying Trend, shown on the right side of the Trend column, is discussed in my essay of July 23, 2004. A comprehensive review of our Market Timing System was presented in a series of seven essays from July 9, 2004 to August 20, 2004.

While it may confuse some people, one of the best times to buy stocks can be when we have 3 Yellow lights and an UpDn situation. But you have to look both ways before you act. You have to see whether prices are rallying in a falling market or whether they are taking off from a bottom. Of course we prefer to buy stocks at the lowest prices, so we use the Market Timing Graph to see what is going on. We give you the results of our analysis in our Strategy commentaries.

As I write this essay, 3:00PM ET, VectorVest RealTime is showing 3 Yellow lights, a DnDn situation and the Price of the V V C is at $25.57 per share. If the Price of the V V C goes up more than one cent, it will be higher than last Friday's close of $25.58 per share and the Primary Wave will be Up. Therefore, the table shown above would say it's OK to buy stocks, but caution is advised. So what would we do?

The first thing we would do is close out of the ETF Contra Fund positions in the Model Portfolio. We'd then be in cash. The next thing we'd do is get a shopping list ready to go long on Monday if the rally continues. We always want to go with the flow. So the Price of the V V C would not only have to be going up next Monday, but it would have to go above last Monday's close of $25.86 per share for the Primary Wave to remain in an Up mode. It's important to realize that just because the Primary Wave may be Up on any given day, it doesn't mean the market will go up the next day. We think it would, but we always have to look out for that truck running a red light.

We believe that market direction is the single most important thing you need to know to consistently make money in the stock market. So consulting the Color Guard is the place to start before you do anything with your portfolio. That's why we feature it prominently on our homepage and present it vividly for instant interpretation. Hopefully, it will serve you better now that we have The Color Guard: Clarified.