If the stocks ranked lowest by VST-Vector are in stock market hell, the ones ranked highest must be in heaven. The top stocks ranked by VST-Vector are supposed to have the best combinations of Value, Safety and Timing, so what have the Contra ETFs been doing up there?

Contra ETFs are strange beasts that go up in Price when the market goes down. Not only that, but VectorVest doesn't compute a Value or Safety Rating for Contra ETFs or for any ETFs, actually, but assigns a Value equal to Price and gives default ratings of 1.00 for Relative Value, RV, and Relative Safety, RS, to all ETFs. So Relative Timing, RT, plays a key role in analyzing, sorting and ranking ETFs. When RT goes up, VST-Vector goes up. When RT goes down, VST-Vector goes down. VST follows RT up or down like a puppy on a leash.

So what kind of a VST does it take to make it to heaven? It takes a VST rating of 1.35 or better. This means that any ETF with an RT of 1.76 or higher will show up among the highest ranked VST stocks. As far as I can tell, the first time a Contra ETF had a VST above 1.35 was on August 15, 2007, when SRS, ProShrsUlShRE showed up in Stock Viewer as the eighth highest stock ranked by VST. Had you bought SRS that day and held it to yesterday's close, you'd be up 14.35% vs. a 34.45% drop in the Price of the VectorVest Composite. But there are many, many ways to do much better than that with Contra ETFs. See, for example, our August 3, 2007 "Strategy of the Week," "How to Make Money with UltraShort ETFs," or see our November 2, 2007 "Strategy of the Week," "How to Make Money with Contra ETFs."

I've received feedback that some of our subscribers are upset that some high VST Contra ETFs have 'B' ratings and have been distorting the accuracy of the Buy/Sell Ratio, BSR. On a day such as October 27, 2008, for example, when the Price of the VectorVest Composite closed at a five-year low of $17.13, 99 stocks were rated a 'B' and the BSR was reported to equal 0.01. No, no, no they said, 57 of those stocks were Contra ETFs and they shouldn't count. The "true" BSR should have been reported as 0.005. Now I have to ask you, does a BSR of 0.005 give you any more information than a BSR of 0.01? Both readings indicate a brutally oversold market.

I must admit, however, that there is something I don't like about these guys showing up as high VST stocks. It's that high VST stocks typically have excellent financial track records and go up in Price over the long-term. Contra ETFs do not have the engine of earnings growth to drive their Prices higher and higher over time. In fact, they will be heading back to Hades as soon as the market begins to move higher. That will be a good thing because we would no longer have any Strangers in Paradise.