Last week I said to "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."

I also said there's more here than meets the eye and went on to introduce our trend indicators, the Primary Wave and Market Timing Indicator. To make things simple, I also said that it's always OK to buy stocks when the Primary Wave is Up. Having said all that, I thought I would take the Color Guard out for a test drive.

I wanted to see what would happen if I bought stocks when the Primary Wave was Up and deferred purchases when it was Dn. So I created a 10-stock portfolio as of five years ago, 09/19/03, and managed it week-to-week, selling on an "S" Rec. I stayed long 100% of the time and replaced empty positions only when the Primary Wave was Up. The exercise was very instructional.

At the end of the first year, I had a gain of 22.91%, and a gain of 71.17% after two years. Not bad, I thought, but then my portfolio peaked on May 12, 2006, up 123.51%, and got mauled during the summer of '06. It fell to a gain of 61.67% by September 22, 2006, the three year mark. It fought back to a gain of 99.67% on December 08, 2006; then it went down again. Nevertheless, it recovered once again to a gain of 76.47% by September 21, 2007, the fourth year. It peaked at 99.35% on October 26, 2007 and went downhill after that. As of yesterday, September 18, 2008, it had a gain of 22.55%.

You might say that performance is not very good and I certainly would agree with you. It's not very good at all. But you should remember that I didn't take full advantage of all the information the Color Guard provides and the portfolio still survived 10 months of a terrible bear market. So what other information in the Color Guard could I have used?

Perhaps the most important signals it gives: The Confirmed Up and Confirmed Dn signals. These signals are presented in the Trends column as C/Up and C/Dn. These signals should not be ignored. While there's a lot of flexibility as to when you may buy stocks, you're playing with fire if you buy them when the market is falling. Again, you cannot ignore a C/Dn signal. Had I heeded the C/Dn of November 1, 2007 and gone into cash on November 2, 2007, I would be sitting here with a gain of over 99%. Had I gone into cash on November 2, 2007 and gone long during the following C/Up to C/Dn period of April 3, 2008 to June 11, 2008, I'd have a gain of 135.53%. Now that's not bad, but we can still do a lot better.

Simply buying on Primary Wave Up signals and not buying on Dn signals is a good beginning and using the C/Up and C/Dn signals is a must, but there's much more than that, which I will present in the next few weeks, to fully explain Implementing the Color Guard.