VectorVest Views 5/27/05
On May 23, 2003, the Steel - (Basic) Industry Group was ranked among the 10 lowest Industry Groups by Relative Timing. The average Price of the stocks in this group was $8.68 per share. Less than two years later, on March 4, 2005, the average Price of this Industry Group peaked at $31.86 per share, for a gain of 267%. How could one have gotten in at the beginning of this move?
The answer is spelled out in my Special Report on Bottom Fishing, issued on January 24, 1996. You may access this report by clicking on Research, Special Reports; then Bottom Fishing. Chapter III gives the details on how to go "Bottom Fishing Using Industry Groups." In a nut shell, this technique involves identifying the 10 lowest Industry Groups ranked by RT; seeing which of those groups jumped the highest over the ensuing week and working with the top rated stocks in that group. In the case cited above, the Steel-(Basic) Industry Group was the winner. According to Quick Test, the top five stocks in this group, ranked by VST, gained an average of 427.3% from May 30, 2003 to March 4, 2005.
Given this phenomenal result, I decided to explore this technique in more detail. As noted in the report, the technique described therein is a lot of work. So I used the power of UniSearch to make it easier to perform. For example, instead of printing and comparing the week-to-week data from Industry Viewer, a simple UniSearch command in which one looks at the 10 Industry Groups with the lowest RT ratings as of "1 week ago," and sorts them by RT as of the date of the search does the trick. If one asks that stocks be returned instead of Industry Groups, most of the "work" is eliminated. But it doesn't do exactly what the manual technique did. So I added the criteria that I wanted to see only "B" rated stocks from Industry Groups with RT > 1.00. This move brought the search results much more in line with the manual technique. Upon testing this search, I made the final adjustment of asking to see the 10 Industry Groups with the lowest RT ratings as of "2 weeks ago."
This search is illustrated as this week's "Strategy of the Week." From May 30, 2003 to May 26, 2005 it produced a gain of 159.63% with 18 winners and 5 losers. This was quite impressive, so I used The Simulator to give it a workout. I ran 60 tests starting from January 7, 2000. Each test started on the first Friday of the month and ended on May 20, 2005. Immediately, I saw that this search is no Bear Beater. Virtually all the tests starting before July 2001 lost money. All but two after that made money.
A common trait that I have seen with the bottom fishing searches we've reviewed so far is that they should be used in Up markets only. With this guidance, one can find some really big winners by Bottom Fishing Using Industry Groups.